A10 - Exercise143...

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Exercise 14-3   The equipment’s net present value without considering the  intangible benefits would be: Item Year(s) Amount of  Cash Flows 20%  Factor Present  Value of  Cash Flows Cost of the equipment. Now $(2,500,000) 1.000 $(2,500,000) Annual cost savings. .... 1-15 $400,000 4.675       1,870,000     Net present value. ........ $          (630,000     ) The annual value of the intangible benefits would have to be  great enough to offset a $630,000 negative present value for the  equipment. This annual value can be computed as follows: Required increase in present value $630,000  =   = $134,759 Factor for 15 years 4.675 Exercise 14-12   Investment in the project Factor of the internal rate of return Annual cash inflow $106,700 = = 5.335 $20,000
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Looking in Table 14C-4, and scanning  down  the 10% column,  we find that a factor of 5.335 equals 8 periods. Thus, the  equipment will have to be used for 8 years in order to yield a  return of 10%. Exercise 14-16   1. Note: All present value factors in the computation below have  been taken from Table 14C-3 in Appendix 14C, using a 12%  discount rate. Amount of the investment. ............................ $104,950 Less present value of Year 1 and Year 2  cash inflows: Year 1: $30,000 × 0.893. ............................ $26,790 Year 2: $40,000 × 0.797. ............................   31,880  
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A10 - Exercise143...

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