Accounting
27th Edition
ISBN: 9781337272094
Author: WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher: Cengage Learning,
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Question
Chapter 26, Problem 26.8EX
a.
To determine
Cash flow is the monetary consideration (return or income) received by the business for its long-term capital investment.
Net present value method is the method which is used to compare the initial
To determine: The net cash flow of AME Incorporation.
b.
To determine
To calculate: The net present value of the investment.
c.
To determine
To analysis: The investment in additional truck based on net present value.
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Net Present Value Method for a Service Company
AM Express Inc. is considering the purchase of an additional delivery vehicle for $49,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $5,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $78,000 per year for each of the next five years. A driver will cost $56,000 in 20Y1, with an expected annual salary increase of $4,000 for each year thereafter. The annual operating costs for the truck are estimated to be $3,000 per year.
Present Value of $1 at Compound Interest
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6%
10%
12%
15%
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1
0.943
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2
0.890
0.826
0.797
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0.840
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0.747
0.621
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0.705
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0.432
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0.665
0.513
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0.376
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8
0.627
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0.404
0.327
0.233
9
0.592
0.424
0.361
0.284
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0.558
0.386
0.322…
Net Present Value Method for a Service Company
Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $35,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $6,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be $56,000 per year for each of the next five years. A driver will cost $40,000 in 20Y1, with an expected annual salary increase of $3,000 for each year thereafter. The annual operating costs for the truck are estimated to be $2,000 per year.
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…
Net Present Value Method for a Service Company
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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
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4
0.792
0.683
0.636
0.572
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0.747
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0.705
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0.279
8
0.627
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0.404
0.327
0.233
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0.592
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0.361
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0.558
0.386
0.322…
Chapter 26 Solutions
Accounting
Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Prob. 3DQCh. 26 - Your boss has suggested that a one-year payback...Ch. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - A net present value analysis used to evaluate a...Ch. 26 - Two projects haw an identical net present value of...Ch. 26 - Prob. 9DQCh. 26 - What are the major disadvantages of the use of the...
Ch. 26 - Prob. 11DQCh. 26 - Give an example of a qualitative factor that...Ch. 26 - Prob. 13DQCh. 26 - Average rate of return Determine the average rate...Ch. 26 - Average rate of return Determine the average rate...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Prob. 26.3APECh. 26 - Net present value A project has estimated annual...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Prob. 26.5APECh. 26 - Prob. 26.5BPECh. 26 - Prob. 26.1EXCh. 26 - Average rate of returncost savings Midwest...Ch. 26 - Average rate of returnnew product Micro Tek Inc....Ch. 26 - Calculate cash flows Natures Way Inc. is planning...Ch. 26 - Cash payback period for a service company Prime...Ch. 26 - Cash payback method Lily Products Company is...Ch. 26 - Prob. 26.7EXCh. 26 - Prob. 26.8EXCh. 26 - Net present value methodannuity for a service...Ch. 26 - Prob. 26.10EXCh. 26 - Prob. 26.11EXCh. 26 - Prob. 26.12EXCh. 26 - Net present value method and present value index...Ch. 26 - Prob. 26.14EXCh. 26 - Cash payback period, net present value analysis,...Ch. 26 - Internal rate of return method The internal rate...Ch. 26 - Internal rate of return method for a service...Ch. 26 - Internal rate of return methodtwo projects Munch N...Ch. 26 - Prob. 26.19EXCh. 26 - Prob. 26.20EXCh. 26 - Prob. 26.21EXCh. 26 - Prob. 26.22EXCh. 26 - Sustainable energy capital investment analysis...Ch. 26 - Sustainable product capital investment analysis...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Cash payback period, net present value method, and...Ch. 26 - Net present value method, present value index, and...Ch. 26 - Prob. 26.4APRCh. 26 - Alternative capital investments The investment...Ch. 26 - Capital rationing decision for a service company...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Prob. 26.2BPRCh. 26 - Prob. 26.3BPRCh. 26 - Net present value method, internal rate of return...Ch. 26 - Prob. 26.5BPRCh. 26 - Capital rationing decision for a service company...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Communication Global Electronics Inc. invested...Ch. 26 - Prob. 26.4CPCh. 26 - Qualitative issues in investment analysis The...Ch. 26 - Prob. 26.6CP
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