Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training-services

image text in transcribed
Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training-services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: ear O tion cash Inflow Cash outfiow 2019 $14,400 202018,900 22,000 22,000 S 8,200 11,700 3,400 3, 400 2021 2022 In addition to these cash flows, Aaron expects to pay $20,700 for the equipment. He also expects to pay $3,000 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 $1,000 salvage value and a four year useful life. Aaron desires to earn a rate of return of 9 percent (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) quire a. Catculate the net present value of the investment opportunity (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to 2 decimal places) b. Indicate whether 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. Net pr b. Will the return be above or below the cost of capital

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

Students also viewed these Accounting questions

Question

1. Explain how business strategy affects HR strategy.

Answered: 1 week ago