Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Aaron health is seeking part-time employment while he attends school. He is cosidering purchasing technical equipment that will enable him to star a small training

Aaron health is seeking part-time employment while he attends school. He is cosidering purchasing technical equipment that will enable him to star a small training services company that will offer tutorial sevices over the internet. Aaron expects demand for the service to trow rapidly in the first two years of operation as customers learn abut the availability of the internet assistance. Thereafter, the expects demand to stabilize. The expected cash flows:

Year of operation cash inflow cash outflow

2019 13300 8300
2020 19800 11500
2021 22600 13100
2022 22600 13100

In addition to these cash flows. Aaron expects to pay $20200 for the equipment. He also expects to pay $ 3500 for a major overhaul and updating of the equipment at the end of the second year of operation. the equipment is expected to have a $2000 salvage value and a four year useful life. Aaron desires to earn a rate of return of 10 percent(PV of $ 1 )

a) calculate the net present value of the investment opportunity ( negative amount should be indicated by a minus sign. Round intermediate calculations ana final answer to 2 decimal places.)

b) Indicate whehter the investment opportunity is expected to earn a return that is above or below the desired rate of return and whether it should be accepted.

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

Accounting For Managers Interpreting Accounting Information For Decision Making

Authors: Paul M. Collier

3rd Edition

0470777648, 9780470777640

More Books

Students also viewed these Accounting questions

Question

Why is China an attractive location for many businesses?

Answered: 1 week ago

Question

Define Management or What is Management?

Answered: 1 week ago

Question

What do you understand by MBO?

Answered: 1 week ago