Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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- Need helparrow_forwardPlease only answer PART F d) Suppose the Internal Rate of Return (IRR) of this investment opportunity is 15%. Based on this information alone, should Limitless Ltd. make the investment? Why?Would this decision be consistent with that from B? Explain your reasoning.e) Suppose that, instead of paying the initial £500,000 now, Limitless Ltd. decides to pay it in equal instalments over the next 10 years. How much would the companyneed to pay each year to make all these payments equivalent to £500,000 today? f) Now assume that an alternative project would generate immediate (time zero) net profits of £500,000 upfront, but after that, it would result in annual losses of£120,000 over the next five years, and then the annual losses of £60,000 over the following five years. The cost of capital is 12% and the IRR is 15%. Should you start this project? Explain your reasoning. Would you make the same decision based on NPV and IRR? Why?arrow_forward5. Calculating IRR A firm evaluates all of its projects by applying the IRR rule. If the required return is 11 percent, should the firm accept the following project? LO 3 Year Cash Flow -$157,300 1 74,000 87,000 46,000arrow_forward
- Ivanhoe, Inc., management is expecting a new project to start paying off beginning at the end of next year. Cash flows are expected to be as follows: 8.00% $432676 $473452 Future value Present value $ 2 If Ivanhoe can reinvest these cash flows to earn a return of 8.00 percent, what is the future value of this cash flow stream at the end of 5 years? What is its present value? (Round answers to 2 decimal places, e.g. 52.75. Do not round factor values.) LA $ 5 Year $484455 $486326 $544444arrow_forwardA company is considering an investment that will cost $759,000 and have a useful life of 6 years. The cash flows from the project are expected to be $450,000 per year in the first two years then $170,000 per year for the last 4 years. If the appropriate discount rate is 16.0 percent per annum, what is the NPV of this investment (to the nearest dollar)? Select one: O a. $316870 O b. $321617 O c. $1834870 O d. $439045arrow_forwardNonearrow_forward
- You have an opportunity to invest $104,000 now in return for $79,800 in one year and $29,600 in two years. If your cost of capital is 9.2%, what is the NPV of this investment? Question content area bottom Part 1 The NPV will be $XX enter your response here . (Round to the nearest cent.)arrow_forwardMason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?arrow_forwardFalkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?arrow_forward
- If you invest $15,000 today, how much will you have in (for further instructions on future value in Excel, see Appendix C): A. 20 years at 22% B. 12 years at 10% C. 5 years at 14% D. 2 years at 7%arrow_forwardBuena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?arrow_forwardMike Derr Company expects to earn 12% per year on an Investment that will pay $616,000 six years from now. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.) Compute the present value of this Investment. Future Value Table Factor Present Valuearrow_forward
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