Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 12, Problem 5BE
(a)
To determine
Calculate the
(b)
To determine
Identify the project providing the greatest net present value.
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Project 1 requires an original investment of $96,300. The project will yield cash flows of $16,000 per year for 6 years. Project 2 has a computed net present value of $26,300 over a 4-year life. Project 1 could be sold at the end of 4 years for a price of $82,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 10.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.43 20.335 7 0.665 0.513 0.452 0.376 0.279 8 0 627 0.467 0.404 0.327 0.233.9 0.592 0.424 0:361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 10.943 0.909 0.893 0.870 0.833 2 1833 1736 1.690 1626 1.528 3 2,673 2.487 2.402 2 283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791…
Net Present Value-Unequal Lives
Project 1 requires an original investment of $57,000. The project will yield cash flows of $9,000 per year for 8 years. Project 2 has a computed net present value of
$11,900 over a six-year life. Project 1 could be sold at the end of six years for a price of $37,000.
Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
5
0.747
0.621
0.567
0.497
0.402
6.
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
9.
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Net present value—unequal lives
Project 1 requires an original investment of $375,000. The project will yield cash flows of $90,000 per year for 8 years. Project 2 has a computed net present value of $50,000 over a 6-year life. Project 1 could be sold at the end of 6 years for a price of $40,000.
Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
5
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
9
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3…
Chapter 12 Solutions
Managerial Accounting
Ch. 12 - What are the principal objections to the use of...Ch. 12 - Discuss the principal limitations of the cash...Ch. 12 - Prob. 3DQCh. 12 - Your boss has suggested that a one-year payback...Ch. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - A net present value analysis used to evaluate a...Ch. 12 - Two projects have an identical net present value...Ch. 12 - Prob. 9DQCh. 12 - What are the major disadvantages of the use of the...
Ch. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Average rate of return Determine the average rate...Ch. 12 - Prob. 2BECh. 12 - Prob. 3BECh. 12 - Internal rate of return A project is estimated to...Ch. 12 - Prob. 5BECh. 12 - Average rate of return The following data are...Ch. 12 - Average rate of returncost savings Maui...Ch. 12 - Average rate of returnnew product Hana Inc. is...Ch. 12 - Determine cash flows Natural Foods Inc. is...Ch. 12 - Cash payback period for a service company Janes...Ch. 12 - Cash payback method Lily Products Company is...Ch. 12 - Prob. 7ECh. 12 - Net present value method for a service company...Ch. 12 - Net present value methodannuity for a service...Ch. 12 - Net present value methodannuity Jones Excavation...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Net present value-unequal lives Bunker Hill Mining...Ch. 12 - Prob. 22ECh. 12 - Average rate of return method, net present value...Ch. 12 - Prob. 2PACh. 12 - Net present value method, present value index, and...Ch. 12 - Net present value method, internal rate of return...Ch. 12 - Prob. 5PACh. 12 - Prob. 6PACh. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Net present value method, present value index, and...Ch. 12 - Prob. 4PBCh. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - San Lucas Corporation is considering investment in...Ch. 12 - Prob. 2MADCh. 12 - Prob. 3MADCh. 12 - Prob. 4MADCh. 12 - Prob. 5MADCh. 12 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 12 - Ethics in Action Danielle Hastings was recently...Ch. 12 - Prob. 4TIFCh. 12 - CEO, Worthington Industries (WOR) (a...Ch. 12 - Prob. 6TIFCh. 12 - Prob. 1CMACh. 12 - Staten Corporation is considering two mutually...Ch. 12 - Prob. 3CMACh. 12 - Foster Manufacturing is analyzing a capital...
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- Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.arrow_forwardNet Present Value—Unequal Lives Project 1 requires an original investment of $72,900. The project will yield cash flows of $19,000 per year for eight years. Project 2 has a calculated net present value of $15,200 over a six-year life. Project 1 could be sold at the end of six years for a price of $80,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626…arrow_forwardNet Present Value—Unequal Lives Project 1 requires an original investment of $93,000. The project will yield cash flows of $19,000 per year for six years. Project 2 has a calculated net present value of $23,400 over a four-year life. Project 1 could be sold at the end of four years for a price of $80,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626…arrow_forward
- Net Present Value—Unequal Lives Project 1 requires an original investment of $125,000. The project will yield cash flows of $50,000 per year for 10 years. Project 2 has a computed net present value of $135,000 over an eight-year life. Project 1 could be sold at the end of eight years for a price of $8,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690…arrow_forwardNet Present Value—Unequal Lives Project 1 requires an original investment of $47,900. The project will yield cash flows of $11,000 per year for five years. Project 2 has a calculated net present value of $11,800 over a three-year life. Project 1 could be sold at the end of three years for a price of $46,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690…arrow_forwardYou are considering a project with the following financial data: Required initial investment at n = 0: $50M Project life: 10 years Estimated annual revenue: $X (unknown) Estimated annual operating cost: $15M Required minimum return 20% per year Salvage value of the project: 15% of the initial investment What is the minimum annual revenue (in $M) must be generated to make the project worthwile? a. X = 26.64 M b. X = 32.47 M c. X = 28.38 M d. X = 35.22 Marrow_forward
- Net Present Value—Unequal Lives Project A requires an original investment of $97,800. The project will yield cash flows of $21,000 per year for 9 years. Project B has a computed net present value of $10,100 over a 6-year life. Project A could be sold at the end of 6 years for a price of $46,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3…arrow_forwardNet present value-unequal lives Project 1 requires an original investment of $83,000. The project will yield cash flows of $15,000 per year for 7 years. Project 2 has a computed net present value of $19,600 over a 5-year life. Project 1 could be sold at the end of 5 years for a price of $56,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest 10% 15% 20% 0.909 0.893 0.870 0.833 0.826 0.797 0.756 0.694 0.751 0.712 0.658 0.579 0.683 0.636 0.572 0.482 0.621 0.567 0.497 0.402 0.564 0.507 0.432 0.335 0.513 0.452 0.376 0.279 0.467 0.404 0.327 0.233 0.424 0.361 0.284 0.194 0.386 0.322 0.247 0.162 Year 6% 1 0.943 0.890 2 3 4 5 6 7 8 9 10 Year 1 2 3 4 5 6 7 8 9 10 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 12% Present Value of an Annuity of $1 at Compound Interest 10% 3.170 6% 12% 0.943 0.909 0.893 1.833 1.736 1.690 2.673 2.487 2.402 3.465 3.037 4.212 3.791 3.605…arrow_forwardNet Present Value-Unequal Lives Project 1 requires an original investment of $51,700. The project will yield cash flows of $11,000 per year for 7 years. Project 2 has a computed net present value of $14,100 over a five-year life. Project 1 could be sold at the end of five years for a price of $44,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 2. 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 5. 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 8. 0.627 0.467 0.404 0.327 0.233 6. 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 3. 4.arrow_forward
- A project will produce an operating cash flow of $2,000 a year for 8 years. The initial fixed asset investment in the project will be $10,000. The net aftertax salvage value is estimated at $3,500 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 16 percent? Question 4 options: $(255.04) $(250.13) $(225.61) $(245.23) $(235.42)arrow_forwardNet Present Value—Unequal Lives Project 1 requires an original investment of $91,100. The project will yield cash flows of $14,000 per year for eight years. Project 2 has a calculated net present value of $19,600 over a six-year life. Project 1 could be sold at the end of six years for a price of $58,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626…arrow_forwardNet Present Value-Unequal Lives Project 1 requires an original investment of $55,900. The project will yield cash flows of $11,000 per year for 7 years. Project 2 has a computed net present value of $11,700 over a five-year life. Project 1 could be sold at the end of five years for a price of $44,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest 10% Year 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.870 0.833 1.833 1.736 1.626 1.528 2.673 2.487 2.283 3.465 3.170 2.855 4.212 3.791 3.353 4.917 4.355 3.785 5.582 4.868 4.160 6.210 5.335 4.487 6.802 4.772 5.759 6.145 7.360 5.019 8 9 10 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 15% 0.870 0.756…arrow_forward
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