Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Gult Coast UII (G(U) is an oll and gas exploration company operating in the Gult of Mexico. Company management is looking to purchase a new

image text in transcribedimage text in transcribed

Gult Coast UII (G(U) is an oll and gas exploration company operating in the Gult of Mexico. Company management is looking to purchase a new drill machine and has found three potential machines to buy: - Scenario 1: A new machine with a purchase price of $1,000,000 that will generate annual cash inflows $300,000 for the next 4 years. - Scenario 2: A used machine with a purchase price of $750,000 that will generate cash inflows of $100,000 for the first year, $150,000 in the second year, and $300,000 in the third and fourth year. - Scenario 3: A used machine with a purchase price of $600,000 that will generate cash inflows of $50,000 in the first year. $100,000 in the second year, $200,000 in the third year, $225,000 in the fourth year, and $250,000 in the fifth year. To help the management team decide which machine to pursue, the following Tableau dashboard is prepared. The dashboard calculates the Net Present Value (NPV) of each of the three investment opportunities. You can cycle through each investment opportunity using the drop-down labeled "Select a Scenario" in the upper left. This dashboard summarizes the Cash Flows and Net Present Value for each investment scenario. The slider near the top of the dashboard allows the management team to change the rate of return before making a final decision. Use the information from the visualization to answer the following questions. 1. Assuming the desired rate of return is 8%, which investment scenario will earn a positive return? Scenario 1 Scenario 2 Scenario 3 None of the investments earn a positive return. 2. What is the net present value of scenario \#2 when the desired rate of return (DRR) is 6% ? ($32,647)($70,148)$39,532$69,129 3. Lowering the desired rate of return causes the net present value of each scenario to increase. True False 4. What is the net present value of the future cash flows in year 3 for scenario \#1 when the desired rate of return is 7% ? $300,000$163,260$150,000$244,889 5. Should the company proceed with any of the investments if the desired rate of return is 10% ? Yes No

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

Contemporary Auditing

Authors: Michael C. Knapp

10th edition

978-1285066608, 128506660X, 978-1305445161, 1305445163, 978-1305970816

More Books

Students also viewed these Accounting questions

Question

3. Give examples of four fair disciplinary practices.

Answered: 1 week ago

Question

4. Explain how to use fair disciplinary practices.

Answered: 1 week ago