Question
11. Central Mass Ambulance Service can purchase a new ambulance for $200,000 that will provide an annual net cash flow of $50,000 per year
11. Central Mass Ambulance Service can purchase a new ambulance for $200,000 that will provide an annual net cash flow of $50,000 per year for five years. Calculate the NPV of the ambulance if the required rate of return is 9%. (Round your answer to the nearest $1.) 12. A) $50,000 B) $(5,061) C) $(5,517) D) $5,517 Fitchminster Armored Car can purchase a new vehicle for $200,000 that will provide annual net cash flow over the next five years of $40,000, $45,000, $50,000, $55,000, $60,000. The salvage value of the vehicle will be $25,000. Assume that the vehicle is sold at the end of year 5. Calculate the NPV of the ambulance if the required rate of return is 9%. (Round your answer to the nearest $1.) A) $7,390 B) $6,048 C) $6,780 D) $19,483 II. Answer the following questions: 1. Why are capital budgeting decisions among the most important decisions made by any company? Give a few examples from recent business developments. (4 PTS.) 2. Why is it so difficult for firms to find good investment ideas? (3 PTS.) 3. Discuss the merits and shortcomings of using the payback period for capital budgeting decisions. (3 PTS.) 4. Briefly describe the actual capital budgeting methods of large U.S. corporations. (2 PTS.)
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