Basic present value calculations: Calculate the present value of the following cash flows, rounding to the nearest dollar: a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return. b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return. c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return. d. An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return. Chapter 8 Exercise 4: 4. Cash flow calculations and net present value On January 2, 19X1, Bruce Greene invested $10,000 in the stock market and purchased 500 shares of Heartland Development, Inc. Heartland paid cash dividends of $2.60 per share in 19X1 and 19X2; the dividend was raised to $3.10 per share in 19X3. On December 31, 19X3, Greene sold his holdings and generated proceeds of $13,000. Greene uses the net-present- value method and desires a 16% return on investments. a. Prepare a chronological list of the investment’s cash flows. Note: Greene is entitled to the 19X3 dividend. b. Compute the investment’s net present value, rounding calculations to the nearest dollar. c. Given the results of part (b), should Greene have acquired the Heartland stock? Briefly explain. Chapter 8 exercise 5: 5. Straightforward net present value and internal rate of return The City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost has been calculated as follows: Purchase cost: $450 per acre Site preparation: $175,000 The site can be used for 20 years before it reaches capacity. Bedford, which shares a facility in Bath Township with other municipalities, estimates that the new location will save $40,000 in annual operating costs. a. Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the net-present-value method to determine your answer. b. Compute the internal rate of return on this project. Chapter 8 Problem 1: 1. Straightforward net-present-value and payback computations STL Entertainment is considering the acquisition of a sight-seeing boat for summer tours along the Mississippi River. The following information is available: Cost of boat $500,000 Service life 10 summer seasons Disposal value at the end of 10 seasons $100,000 Capacity per trip 300 passengers Fixed operating costs per season (including straight-line depreciation) $160,000 Variable operating costs per trip $1,000 Ticket price $5 per passenger All operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of the country, management anticipates that each trip will be sold out and that 120,000 passengers will be carried each season. Ignore income taxes. Instructions: By using the net-present-value method, determine whether STL Entertainment should acquire the boat. Assume a 14% desired return on all investments,- round calculations to the nearest dollar. Chapter 8 Problem 4: 4. Equipment replacement decision Columbia Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment is expected to provide six more years of service if $8,700 of major repairs are performed in two years. Annual cash operating costs total $27,200. Columbia can sell the equipment now for $36,000; the estimated residual value in six years is $5,000. New equipment is available that will reduce annual cash operating costs to $21,000. The equipment costs $103,000, has a service life of six years, and has an estimated residual value of $13,000. Company sales will total $430,000 per year with either the existing or the new equipment. Columbia has a minimum desired return of 12% and depreciates all equipment by the straight-line method. Instructions: a. By using the net-present-value method, determine whether Columbia should keep its present equipment or acquire the new equipment. Round all calculations to the nearest dollar, and ignore income taxes. b. Columbia’s management feels that the time value of money should be considered in all long-term decisions. Briefly discuss the rationale that underlies management’s belief Custom Essay

1. Basic confer-upon reprove calculations

Calculate the confer-upon reprove of the restraintthcoming capital issues, completeing to the undeviating dollar:

  1. A solitary capital inissue of $12,000 in five years, discounted at a 12% reprove of recur.
  2. An annual acknowledgment of $16,000 balance the give 12 years, discounted at a 14% reprove of recur.
  3. A solitary acknowledgment of $15,000 at the object of Year 1 followed by a solitary acknowledgment of $10,000 at the object of Year 3. The posse has a 10% reprove of recur.
  4. An annual acknowledgment of $8,000 restraint three years followed by a solitary acknowledgment of $10,000 at the object of Year 4. The posse has a 16% reprove of recur.

 

Chapter 8 Employment 4:

4. Capital issue calculationsand decoy confer-upon reprove

On January 2, 19X1, Bruce Greene invested $10,000 in the fund negotiate and purchased 500 portion-outs of Heartland Development, Inc. Heartland remunerated capital dividends of $2.60 per portion-extinguished in 19X1 and 19X2; the dividobject was loud to $3.10 per portion-extinguished in 19X3. On December 31, 19X3, Greene sold his holdings and generated fullowance of $13,000. Greene uses the decoy-present- reprove way and desires a 16% recur on bombardments.

  1. Prepare a chronological roll of the bombardment’s capital issues. Note: Greene is entitled to the 19X3 dividend.
  2. Compute the bombardment’s decoy confer-upon reprove, completeing calculations to the undeviating dollar.
  3. Given the results of part (b), should Greene own extraneous the Heartland fund? Briefly interpret.

 

Chapter 8 employment 5:

5. Straightforwarddecoy confer-upon reprove and inside reprove of recur

The City of Bedford is studying a 600-acre top on Route 356 restraint a strange landfill. The startup absorb has been congenial as follows:

Purchase absorb: $450 per acre

Top preparation: $175,000

 

The top can be used restraint 20 years antecedently it reaches competency. Bedford, which portion-outs a dexterity in Bath Township with other municipalities, estimates that the strange colonization fullure economize $40,000 in annual playing absorbs.

  1. Should the landfill be extraneous if Bedford desires an 8% recur on its bombardment? Use the decoy-present-reprove way to indicate your rejoinder.
  2. Compute the inside reprove of recur on this contrivance.

 

Chapter 8 Problem 1:

1. Straightforward decoy-present-reprove and payback computations

STL Entertainment is because the wages of a sight-seeing boat restraint summer tours along the Mississippi River. The restraintthcoming notice is profitable:

Absorb of boat $500,000
Advantage existence 10 summer suitablenesss
Disposal reprove at the object of 10 suitablenesss $100,000
Competency per mistake 300 passengers
Fixed playing absorbs per suitableness (including straight-line slander) $160,000
Variable playing absorbs per mistake $1,000
Ticket price $5 per passenger

 

Full playing absorbs, negative slander, demand capital extinguishedlays. On the foundation of resembling operations in other volume of the empire, administration anticipates that each mistake fullure be sold extinguished and that 120,000 passengers fullure be carried each suitableness. Overlook proceeds taxes.

 

Instructions:

By using the decoy-present-reprove way, indicate whether STL Entertainment should reap the boat. Assume a 14% desired recur on full bombardments,- complete calculations to the undeviating dollar.

 

Chapter 8 Problem 4:

4. Equipment regaining conclusion

Columbia Enterprises is studying the regaining of some equipment that originally absorb $74,000. The equipment is expected to stipulate six over years of advantage if $8,700 of superior repairs are performed in span years. Annual capital playing absorbs aggregate $27,200. Columbia can hawk the equipment now restraint $36,000; the estimated residual reprove in six years is $5,000.

Strange equipment is profitable that fullure impoverish annual capital playing absorbs to $21,000. The equipment absorbs $103,000, has a advantage existence of six years, and has an estimated residual reprove of $13,000. Posse sales fullure aggregate $430,000 per year with either the stout or the strange equipment. Columbia has a incompleteness desired recur of 12% and depreciates full equipment by the straight-line way.

 

Instructions:

  1. By using the decoy-present-reprove way, indicate whether Columbia should binder its confer-upon equipment or reap the strange equipment. Complete full calculations to the undeviating dollar, and overlook proceeds taxes.
  2. Columbia’s administration feels that the period reprove of money should be considered in full long-term conclusions. Briefly sift-canvass the rationale that underlies administration’s assurance.

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