Using the following partial
table of present value of $1 at compound
interest, determine the present value of
$20,000 to be received four years hence,
with earnings at the rate of 10% a year:
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
$13,660
Which of the following are
present value methods of analyzing
capital investment proposals? Net
present value and internal rate of return
When several alternative
investment proposals of the same
amount are being considered, the one
with the largest net present value is the
most desirable.
If the alternative
proposals involve different amounts of
investment, it is useful to prepare a
relative ranking of the proposals by
using a(n): present value index
The management of Arnold
Corporation is considering the purchase
of a new machine costing $400,000. The
company's desired rate of return is 10%.
The present value factors for $1 at
compound interest of 10% for 1 through
5 years are 0.909, 0.826, 0.751, 0.683,
and 0.621, respectively. In addition to
the foregoing information, use the
following data in determining the
acceptability in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$100,000
$180,000
2
40,000
120,000
3
20,000
100,000
4
10,000
90,000
5
10,000
90,000

The average rate of return for this
investment is:
18%
By converting dollars to be
received in the future into current
dollars, the present value methods take
into consideration that money: has a
time value
A cost that will not be
affected by later decisions is termed
a(n): sunk cost
The amount of income that
would result from an alternative use of
cash is called: opportunity cost
Wilson Company is
considering replacing equipment which
originally cost $500,000 and which has
$460,000 accumulated depreciation to
date.
A new machine will cost
$790,000.
What is the sunk cost in this
situation? $40,000
A business is considering a
cash outlay of $250,000 for the purchase
of land, which it could lease for $36,000
per year.
If alternative investments are
available which yield an 18% return, the
opportunity cost of the purchase of the
land is: $45,000

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- Spring '12
- MRSX
- Net Present Value, Generally Accepted Accounting Principles