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# A10 - Exercise143 Item Year(s Amountof CashFlows...

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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         58,670
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