Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Question
Chapter 25, Problem 25.7EX
(a)
To determine
Net present value method is the method which is used to compare the initial
To calculate: The net present value of the investment.
(b)
To determine
To explain: whether the management would look with favor on the proposal.
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The following data are accumulated by Lingle Company in evaluating the purchase of $180,000 of equipment having a 4-year useful life:
Net Income
Net Cash Flow
Year 1
$51,000
$96,000
Year 2
33,000
78,000
Year 3
15,000
60,000
Year 4
3,000
48,000
Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter.
4. The following data are accumulated by Geddes Company in evaluating the purchase of $150,000
of equipment, having a four-year useful life:
Year 1
Year 2
Year 3
Year 4
Year
Net Income
$43,500
26,500
13,500
2,900
Net Cash Flow
$81,000
64,000
50,500
40,000
a. Assuming that the desired rate of return is 15%, determine the net present value for the
proposal. Use the table of the present value of $1 appearing in Exhibit 2 of this chapter.
b. Would management be likely to look with favor on the proposal? Explain.
Cash payback period, net present value method, and analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:
Each project requires an investment of $900,000. A rate of 15% has been selected for the net present value analysis.
Instructions
1. Compute the following for each product:
a. Cash payback period.
b. The net present value. Use the present value of $1 table appearing in this chapter (Exhibit 2).
2. Prepare a brief report advising management on the relative merits of each project.
Chapter 25 Solutions
Financial & Managerial Accounting
Ch. 25 - Prob. 1DQCh. 25 - Discuss the principal limitations of the cash...Ch. 25 - Prob. 3DQCh. 25 - Prob. 4DQCh. 25 - Prob. 5DQCh. 25 - Prob. 6DQCh. 25 - Prob. 7DQCh. 25 - Two projects have an identical net present value...Ch. 25 - Prob. 9DQCh. 25 - Prob. 10DQ
Ch. 25 - Prob. 11DQCh. 25 - Give an example of a qualitative factor that...Ch. 25 - Average rate of return Determine the average rate...Ch. 25 - Prob. 25.2BECh. 25 - Prob. 25.3BECh. 25 - Internal rate of return A project is estimated to...Ch. 25 - Prob. 25.5BECh. 25 - Prob. 25.1EXCh. 25 - Average rate of returncost savings Midwest...Ch. 25 - Average rate of returnnew product Galactic Inc. is...Ch. 25 - Calculate cash flows Natures Way Inc. is planning...Ch. 25 - Prob. 25.5EXCh. 25 - Cash payback method Lily Products Company is...Ch. 25 - Prob. 25.7EXCh. 25 - Net present value method for a service company AM...Ch. 25 - Net present value method annuity for a service...Ch. 25 - Prob. 25.10EXCh. 25 - Net present value method for a service company...Ch. 25 - Present value index Dip N' Dunk Doughnuts has...Ch. 25 - Net present value method and present value index...Ch. 25 - Prob. 25.14EXCh. 25 - Cash payback period, net present value analysis,...Ch. 25 - Internal rate of return method The internal rate...Ch. 25 - Prob. 25.17EXCh. 25 - Internal rate of return methodtwo projects Munch N...Ch. 25 - Prob. 25.19EXCh. 25 - Prob. 25.20EXCh. 25 - Net present value unequal lives Bunker Hill Mining...Ch. 25 - Net present value unequal lives Daisys Creamery...Ch. 25 - Prob. 25.1APRCh. 25 - Cash payback period, net present value method, and...Ch. 25 - Prob. 25.3APRCh. 25 - Prob. 25.4APRCh. 25 - Prob. 25.5APRCh. 25 - Prob. 25.6APRCh. 25 - Prob. 25.1BPRCh. 25 - Cash payback period, net present value method, and...Ch. 25 - Prob. 25.3BPRCh. 25 - Net present value method, internal rate of return...Ch. 25 - Prob. 25.5BPRCh. 25 - Capital rationing decision for a service company...Ch. 25 - Wind turbine capital investment analysis Central...Ch. 25 - Paper reclaim capital investment analysis The...Ch. 25 - Tire design capital investment analysis...Ch. 25 - Ethics in Action Danielle Hastings was recently...
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