work_at_home_soultions_ch16[1]

work_at_home_soultions_ch16[1] - Chapter 16 Planning for...

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Chapter 16 Planning for Capital Investments Exercise 16-1 Item Type of Cash Flow a. Incremental revenue Inflow b. Initial investment Outflow c. Salvage values Inflow d. Recovery of working capital Inflow e. Incremental expenses Outflow f. Working capital commitments Outflow g. Cost savings Inflow Exercise 16-2 a. Present value Present value = Future value x Table Factor* Present value = $60,000 x 0.909091 Present value = $54,545 *Table 1, n = 1, r = 10% b. Investment + (0.10 x Investment) = $60,000 $54,545 + (0.10 x $54,545) = $60,000 $60,000 = $60,000 Exercise 16-3 a. Present value Present value = Future value x Table Factor* Present value = $500,000 x 0.567427 Present value = $283,714 *Table 1, n = 5, r = 12% Ms. Pena should accept her employer’s offer of $300,000 because this amount is more than the present value of $500,000 to be received in the future ($283,714). 16-1
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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
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work_at_home_soultions_ch16[1] - Chapter 16 Planning for...

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