Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1) Annual cash inflows that will arise from two competing investment projects are given below: Year Investment A Investment B 1 $ 5,000 $8,000 2

1) Annual cash inflows that will arise from two competing investment projects are given below: Year Investment A Investment B 1 $ 5,000 $8,000 2 6,000 7,000 3 7,000 6,000 4 8,000 5,000 Total $26,000 $26,000 The discount rate is 11%. Use Excel or a financial calculator to solve the homework. Round answers to the nearest dollar. Required: Compute the present value of the cash inflows for each investment. Each investment opportunity will require the same initial investment.

Present value of cashflows

Investment A ?

nvestment B?

2)

Julie has just retired. Her companys retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $157,000 immediately as her full retirement benefit. Under the second option, she would receive $20,000 each year for six years plus a lump-sum payment of $65,000 at the end of the six-year period.

Use Excel or a financial calculator to solve. Round answers to the nearest dollar.

Required:
1a.

Calculate the present value for the following assuming that the money can be invested at 12%.

1b. If you can invest money at a 12% return, which option would you prefer?
First option
Second option

3. Fraser Company will need a new warehouse in three years. The warehouse will cost $360,000 to build.

Use Excel or a financial calculator to solve. Round answers to the nearest dollar.

Required:
1.

What lump-sum amount should the company invest now to have the $360,000 available at the end of the three-year period? Assume that the company can invest money at six percent.

2.

What lump-sum amount should the company invest now to have the $360,000 available at the end of the three-year period? Assume that the company can invest money at ten percent.

4. The Atlantic Medical Clinic can purchase a new computer system that will save $6,000 annually in billing costs. The computer system will last for six years and have no salvage value.

Use Excel or a financial calculator to solve. Round answers to the nearest dollar.

Required:

Up to how much should the Atlantic Medical Clinic be willing to pay for the new computer system if the clinics required rate of return is:

5. The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the states newest millionaire. By choosing the six winning numbers on last weeks state lottery, Mr. Ormsby has won the weeks grand prize totaling $1.12 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $56,000 each.

Use Excel or a financial calculator to solve. Round answers to the nearest dollar.

Required:
1.

If Mr. Ormsby can invest money at a 8% rate of return, what is the present value of his winnings?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Cases

Authors: Frank A. Buckless, Mark. S. Beasley, Steven M. Glover, Douglas F. Prawitt

1st Edition

978-0130800015

More Books

Students also viewed these Accounting questions

Question

What are the various power bases of reference groups?

Answered: 1 week ago