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
- Net Present Value, Generally Accepted Accounting Principles