Question
Figure 14-10. Present value of $1 Periods 4% 6% 8% 10% 12% 14% 1 0.962 0.943 0.926 0.909 0.893 0.877 2 0.925 0.890 0.857 0.826
Figure 14-10.
Present value of $1
Periods | 4% | 6% | 8% | 10% | 12% | 14% |
1 | 0.962 | 0.943 | 0.926 | 0.909 | 0.893 | 0.877 |
2 | 0.925 | 0.890 | 0.857 | 0.826 | 0.797 | 0.769 |
3 | 0.889 | 0.840 | 0.794 | 0.751 | 0.712 | 0.675 |
4 | 0.855 | 0.792 | 0.735 | 0.683 | 0.636 | 0.592 |
5 | 0.822 | 0.747 | 0.681 | 0.621 | 0.567 | 0.519 |
6 | 0.790 | 0.705 | 0.630 | 0.564 | 0.507 | 0.456 |
7 | 0.760 | 0.665 | 0.583 | 0.513 | 0.452 | 0.400 |
8 | 0.731 | 0.627 | 0.540 | 0.467 | 0.404 | 0.351 |
9 | 0.703 | 0.592 | 0.500 | 0.424 | 0.361 | 0.308 |
10 | 0.676 | 0.558 | 0.463 | 0.386 | 0.322 | 0.270 |
Present value of an Annuity of $1
Periods | 4% | 6% | 8% | 10% | 12% | 14% |
1 | 0.962 | 0.943 | 0.926 | 0.909 | 0.893 | 0.877 |
2 | 1.886 | 1.833 | 1.783 | 1.736 | 1.690 | 1.647 |
3 | 2.775 | 2.673 | 2.577 | 2.487 | 2.402 | 2.322 |
4 | 3.630 | 3.465 | 3.312 | 3.170 | 3.037 | 2.914 |
5 | 4.452 | 4.212 | 3.993 | 3.791 | 3.605 | 3.433 |
6 | 5.242 | 4.917 | 4.623 | 4.355 | 4.111 | 3.889 |
7 | 6.002 | 5.582 | 5.206 | 4.868 | 4.564 | 4.288 |
8 | 6.733 | 6.210 | 5.747 | 5.335 | 4.968 | 4.639 |
9 | 7.435 | 6.802 | 6.247 | 5.759 | 5.328 | 4.946 |
10 | 8.111 | 7.360 | 6.710 | 6.145 | 5.650 | 5.216 |
12. Refer to Figure 14-10. Johnson Company is considering an investment that will have an initial cost of $500,000 and yield annual net cash inflows of $130,000. Yearly depreciation will be $100,000. The equipment is expected to be useful for five years, at which point it will be scrapped with no salvage value. Johnson requires a minimum rate of return of 10 percent.
A. | What is the accounting rate of return? |
B. | What is the net present value? Is the investment acceptable? |
C. | Now suppose that Johnson believes it can sell the equipment at the end of 5 years for $50,000. What is the net present value? Is the investment acceptable? |
D. | What can you say about the IRR in the first case (no salvage value) versus the IRR in the second case ($50,000 salvage value)? Note: You do not need to figure out the IRR for this problem. |
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