Chapter 16 Planning for Capital Investments
b.
The factors that cause the present value to be less than the amount of
future value are (1) future interest, (2) less risk, and (3) future inflation.
Exercise 16-4
a.
Present Value
Present Value
= Future Value
x Table Factor
= Present Value
Present value
=
$10,000
x
0.925926
(1)
=
$
9,259.26
Present value
=
$10,000
x
0.857339
(2)
=
8,573.39
Present value
=
$10,000
x
0.793832
(3)
=
7,938.32
Total present value
$25,770.97
(1)
Table 1, n = 1, r = 8%
(2)
Table 1, n = 2, r = 8%
(3)
Table 1, n = 3, r = 8%
b.
Present Value
Present Value
= Future Value
x Table Factor
= Present Value
Present value
=
$10,000
x
2.577097
(1)
=
$25,770.97
(1)
Table 2, n = 3, r = 8%
c.
The present values are the same because the present value factor
of Table 2 is simply the sum of the three values from Table 1.
Exercise 16-5
a.
Present Value
Present Value
= Future Value
x Table Factor
= Present Value
Present value
=
$20,000
x
2.913712*
=
$58,274.24
Present value
=
$30,000
x
0.592080**
=
17,762.40
Total present value
=
76,036.64
Cost of vans
=
(65,000.00)
Net present value
=
$11,036.64
*Table 2, n = 4, r = 14%
**Table 1, n = 4, r = 14%
b.
Since the net present value is positive, the investment opportunity
can be expected to earn a rate of return that is greater than the cost
16-2