Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1.An investment in new software is expected to have the following cash flows over a three-year period . The discount rate is 12 percent? Year


1.An investment in new software is expected to have the following cash flows over a three-year period. The discount rate is 12 percent?

Year Cash Flow

0 -$28,900

1   $12,450

2   $19,630

3   $ 2,750

  1. A layoff is expected to have an immediate restructuring charge of $7,500 and save money for the firm according to the schedule below.   The firm’s weighted average cost of capital is 11 percent (which may be used as the discount rate for average-risk investments).


Year Cash Inflows

1   $4,375

2   $ 0

3   $8,750

4   $4,100

  1. Productivity training for a firm’s employees should produce cost savings from productivity increases of $1,750 a year for four years. The training initially costs $10,600. The firm’s weighted average cost of capital is 13 percent (which may be used as the discount rate for average-risk investments).
  2. You are considering the following two mutually exclusive projects. The required rate of return is 11 percent (which is the same as the discount rate) for project A and 10 percent for project B. Which project should you accept and why?

Year    Project A        Project B

0          -$48,000       -$126,900

1             $18,400         $ 69,700

2             $31,300         $ 80,900

3             $11,700         $ 0

  1. You are considering two mutually exclusive projects with the following after-tax cash flows. Will your choice between the two projects differ if the required rate of return (which is the same as the discount rate) is 8 percent rather than 11 percent? If so, what should you do?

Year    Project A        Project B

0          -$240,000     -$198,000

1             $ 0                 $110,800

2             $ 0                 $ 82,500

3          $325,000      $ 45,000

PS: I need to show the work of how I arrived to the answer. Thanks. I need this today, if possible, please.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

To determine which project to accept in the first scenario we need to calculate the net present valu... 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_2

Step: 3

blur-text-image_3

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

Management and Cost Accounting

Authors: Colin Drury

8th edition

978-1408041802, 1408041804, 978-1408048566, 1408048566, 978-1408093887

More Books

Students also viewed these Finance questions

Question

Describe how self-defeating attitudes create a vicious cycle.

Answered: 1 week ago

Question

What is an insurable interest? Why is it important?

Answered: 1 week ago

Question

1. What does dorsal mean, and what is its oppositepg99

Answered: 1 week ago