Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 4, Problem 4.4P
Learning Goals 2, 3
P4-4
| Accruals | $ 15,000 |
| Current assets | 120,000 |
| Interest expense | 15,000 |
| Sales revenue | 400,000 |
| Inventory | 70,000 |
| Total costs before depreciation, interest, and taxes | 290,000 |
| Tax rate on ordinary income | 40% |
- a. Use the relevant data to determine the operating cash flow (see Equations 4.2 and 4.3) for the current year.
- b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm’s cash flows.
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Net present value method
The following data are accumulated by Geddes Company in evaluating the purchase of $140,000 of equipment, having a four-year useful life:
Net Income
Net Cash Flow
Year 1
$42,500
$77,500
Year 2
21,500
56,500
Year 3
15,500
50,500
Year 4
6,500
41,500
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
Assuming that the desired rate of return is 6%, determine the net present value for the proposal. If required, round to the nearest dollar.
Net present value
$fill in the blank 2
Would management be likely to look with favor on the proposal?
, the net present value indicates that the return on the proposal is than the minimum desired rate of return of 6%.
Net present value method
The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life:
Net Income
Net Cash Flow
Year 1
$40,000
$77,500
Year 2
30,000
67,500
Year 3
16,500
54,000
Year 4
2,000
39,500
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
Open spreadsheet
Assuming that the desired rate of return is 15%, determine the net present value for the proposal. If required, round to the nearest dollar.
Net present value
$
Would management be likely to look with favor on the proposal?
, the net present value indicates that the return on the proposal is than the minimum desired rate of return of 15%.
Net present value method
The following data are accumulated by Geddes Company in evaluating the purchase of $130,000 of equipment, having a four-year useful life:
Net Income
Net Cash Flow
Year 1
$46,000
$78,500
Year 2
29,000
61,500
Year 3
11,000
43,500
Year 4
5,000
37,500
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.
Assuming that the desired rate of return is 10%, determine the net present value for the proposal. If required, round to the nearest dollar.
Net present value
$
Would management be likely to look with favor on the proposal?
Yes
, the net present value indicates that the return on the proposal is
greater
than the minimum desired rate of return of 10%.
Chapter 4 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 4.1 - Briefly describe the first four modified...Ch. 4.1 - Describe the overall cash flow through the firm in...Ch. 4.1 - Prob. 4.3RQCh. 4.1 - 4-B Why is depreciation (as well as amortization...Ch. 4.1 - Prob. 4.5RQCh. 4.1 - Prob. 4.6RQCh. 4.1 - Prob. 4.7RQCh. 4.2 - Prob. 4.8RQCh. 4.2 - Prob. 4.9RQCh. 4.3 - Prob. 4.10RQ
Ch. 4.3 - Prob. 4.11RQCh. 4.3 - Prob. 4.12RQCh. 4.3 - What is the cause of uncertainty in the cash...Ch. 4.4 - Prob. 4.14RQCh. 4.5 - Prob. 4.15RQCh. 4.5 - Prob. 4.16RQCh. 4.6 - Prob. 4.17RQCh. 4.6 - What is the significance of the plug figure,...Ch. 4.7 - Prob. 4.19RQCh. 4.7 - Prob. 4.20RQCh. 4 - Opener-in-Review The chapter opener described a...Ch. 4 - Learning Goals 2, 3 ST4-1 Depreciation and cash...Ch. 4 - Prob. 4.2STPCh. 4 - Prob. 4.3STPCh. 4 - Prob. 4.1WUECh. 4 - Prob. 4.2WUECh. 4 - Learning Goal 3 E4-3 Determine the operating cash...Ch. 4 - Prob. 4.4WUECh. 4 - Prob. 4.5WUECh. 4 - Prob. 4.1PCh. 4 - Prob. 4.2PCh. 4 - Prob. 4.3PCh. 4 - Learning Goals 2, 3 P4-4 Depreciation and...Ch. 4 - Learning Goal 3 P4-5 Classifying inflows and...Ch. 4 - Prob. 4.6PCh. 4 - Learning Goal 4 P4-8 Cash receipts A firm has...Ch. 4 - Learning Goal 4 P4-9 Cash disbursements schedule...Ch. 4 - Learning Goal 4 P4-10 Cash budget: Basic Grenoble...Ch. 4 - Prob. 4.10PCh. 4 - Prob. 4.11PCh. 4 - Prob. 4.12PCh. 4 - Prob. 4.13PCh. 4 - Learning Goal 4 P4-15 Multiple cash budgets:...Ch. 4 - Prob. 4.15PCh. 4 - Prob. 4.16PCh. 4 - Prob. 4.17PCh. 4 - Prob. 4.18PCh. 4 - Prob. 4.19PCh. 4 - Prob. 4.20PCh. 4 - Prob. 4.21PCh. 4 - Prob. 1SE
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