FUNDAMENTALS OF COST ACCOUNTING W/CONNE
6th Edition
ISBN: 9781264199617
Author: LANEN/ANDERSON
Publisher: MCG
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Textbook Question
Chapter A, Problem 12E
Present Value of Cash Flows
Star City is considering an investment in the community center that is expected to return the following cash flows:
This schedule includes all
Required
- a. What is the
net present value of the project if the appropriate discount rate is 20 percent? - b. What is the net present value of the project if the appropriate discount rate is 12 percent?
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Star City is considering an investment in the community center that is expected to return the following cash flows: Use
Exhibit A.8.
Year Net Cash Flow
1234in
5
$ 28,000
58,000
88,000
88,000
108,000
This schedule includes all cash inflows from the project, which will also require an immediate $208,000 cash outlay.
The city is tax-exempt; therefore, taxes need not be considered.
Required:
a. What is the net present value of the project if the appropriate discount rate is 22 percent? (Round PV factor to 3
decimal places. Negative amount should be indicated by a minus sign.)
Net present value
2) Assume that you are considering a project. Its initial after-tax
cost is $1,500,000 and it is expected to provide after-tax
operating cash inflows of $1,800,000 in year 1, $2,900,000 in
year2, $2,700,000 in year 3 and $2,300,000 in year 4.
a. Roughly calculate the Internal Rate of Return (IRR) of
the project.
b. Discuss whether you accept the project or not.
A public project is being considered by a local government that will cost $10M at the start
and SSM at the end of years 1 through 5. The project is estimated to earn $20M at the end of
year 2, $30M at the end of years 3 and 4, and $20M at the end of year 5. Assuming i = 10%.
What is the benefit-to-cost ratio for this project? Draw a cash flow diagram for the costs
and benefits annually.
Chapter A Solutions
FUNDAMENTALS OF COST ACCOUNTING W/CONNE
Ch. A - What are the two most important factors an...Ch. A - Prob. 2RQCh. A - Prob. 3RQCh. A - Prob. 4RQCh. A - Prob. 5RQCh. A - Prob. 6CADQCh. A - What are the four types of cash flows related to a...Ch. A - Is depreciation included in the computation of net...Ch. A - The total tax deduction for depreciation is the...Ch. A - Prob. 10CADQ
Ch. A - In Chapter 14, we discussed performance...Ch. A - Present Value of Cash Flows Star City is...Ch. A - Prob. 13ECh. A - Present Value Analysis in Nonprofit Organizations...Ch. A - Prob. 15ECh. A - What is the net present value of the investment...Ch. A - Prob. 17PCh. A - Sensitivity Analysis in Capital Investment...Ch. A - Compute Net Present Value Dungan Corporation is...
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