Chapter 14 cont - Bus 215 Section 8 December 1 2010...

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Unformatted text preview: Bus 215 Section 8 December 1, 2010 Homework Assignment: Chapter 14 Continued E14-2: 1. The total annual cash inflows associated with the new machine for capital budgeting would be 3,800 + (1,000 x $1.20) = $5,000 2. The factor of the internal rate of return = 18,600/5,000 = 3.72. Therefore, the rate of return promised by the new machine to the nearest whole percent is 15%. 3. Item Year(s) Amount of Cash Flow 22% Factor Present Value of Cash Flows Initial Investment Now ($18,600) 1.00 ($18,600) Annual Cash Flows 1-6 $5,000 3.167 $15,835 Salvage Value 6 $9,125 0.303 $2,765 Net Present Value $0 E14-11: 1) Yes, the purchase of the new machine is acceptable because it promises a return equal to the required rate of return. Item Year(s) Amount of Cash Flow 14% factor Present value of Cash flows Annual cost savings 1-12 $15,000 5.66 $84,900 Initial Investment Now $84,900 1.000 ($84,900) Net present value $0 2) If the new press costs $217,500 then the factor of the internal rate of return is 217,500/3,000 =...
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Chapter 14 cont - Bus 215 Section 8 December 1 2010...

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