Question
Exercise 12-1 Payback Method [LO12-1] The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment
Exercise 12-1 Payback Method [LO12-1]
The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows:
| Year | Investment | Cash Inflow | ||
| 1 | $ | 56,000 | $ | 2,000 |
| 2 | $ | 6,000 | $ | 4,000 |
| 3 | $ | 8,000 | ||
| 4 | $ | 9,000 | ||
| 5 | $ | 12,000 | ||
| 6 | $ | 10,000 | ||
| 7 | $ | 8,000 | ||
| 8 | $ | 6,000 | ||
| 9 | $ | 5,000 | ||
| 10 | $ | 5,000 | ||
Required:
1. Determine the payback period of the investment. ( )
2. Would the payback period be affected if the cash inflow in the last year were several times as large? ( )
Exercise 12-2 Net Present Value Analysis [LO12-2]
The management of Kunkel Company is considering the purchase of a $21,000 machine that would reduce operating costs by $5,000 per year. At the end of the machines five-year useful life, it will have zero salvage value. The companys required rate of return is 12%.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
Required:
1. Determine the net present value of the investment in the machine. ( )
2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
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Auditing The Art and Science of Assurance Engagements
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones
14th Canadian edition
134613112, 134835018, 9780134885254 , 978-0134613116
