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BRIEF EXERCISE 12

# BRIEF EXERCISE 12 - BRIEF EXERCISE 12-1 \$450,000 \$55,000 =...

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BRIEF EXERCISE 12-1 \$450,000 ÷ \$55,000 = 8.2 years BRIEF EXERCISE 12-2 Present Value Net annual cash flows – \$40,000 X 5.65 Capital investment Net present value \$226,000 220,000 \$ 6,000 The investment should be made because the net present value is positive. BRIEF EXERCISE 12-3 Cash Flows X 10% Discount Factor = Present Value Present value of net annual cash flows Present value of salvage value Capital investment Net present value \$25,000 70,000 X X 3.79079 .62092 = = \$ 94,770 43,464 138,234 136,000 \$ 2,234 Since the net present value is positive, the project is acceptable. BRIEF EXERCISE 12-4 Cash Flows X 9% Discount Factor = Present Value Present value of net annual cash flows Present value of salvage value Capital investment Net present value \$35,000 0 X X 5.53482 .50187 = = ( \$193,719 ) ( 0 ) ( 193,719 ) ( 200,000 ) ( \$ (6,281 ) The reduction in downtime would have to have a present value of at least \$6,281 in order for the project to be acceptable.

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BRIEF EXERCISE 12-5 Project A Cash Flows X 9% Discount Factor = Present Value Present value of net annual cash flows Present value of salvage value Capital investment Net present value \$70,000 0 X X 6.41766 .42241 = = \$449,236 0 449,236 395,000 \$ 54,236 Profitability index = \$449,236/\$395,000 = 1.14
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BRIEF EXERCISE 12 - BRIEF EXERCISE 12-1 \$450,000 \$55,000 =...

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