Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Sensitivity analysis: San Lucas Corporation San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: Cost of robotic machinery $4,000,000 Residual

image text in transcribedimage text in transcribed

Sensitivity analysis: San Lucas Corporation San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: Cost of robotic machinery $4,000,000 Residual value 300,000 Useful life 10 years a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $700,000. Use the present value tables appearing in Exhibit 2 and 5 of this chapter. Net present values b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $500,000, $700,000, and $900,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value. Annual Net Cash Flow $500,000 $700,000 $900,000 Net present value s s c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar. Annual Net Cash Flows d. San Lucas Corporation wishes to invest in a robotics project. Based on the information from the above requirements, at what cash flow should San Lucas Corporation accept the project? (a) If the net cash flow is $700,000 (b) If the net cash flow is $900,000 (c) If the net cash flow is $500,000 (d) Both $700,000 and $900,000 net cash flow. d In the above given situation identify the statement that supports San Lucas Corporation's decision of accepting $700,000 and $900,000 net cash flows. (a) The net cash inflow is higher and in turn increases the profitability of the business. a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $700,000. Use the present value tables appearing in Exhibit 2 and 5 of this chapter. Net present values b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $500,000, 5700,000, and $900,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value. Annual Net Cash Flow $500,000 $700,000 $900,000 Net present value s s c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar. Annual Net Cash Flows d. San Lucas Corporation wishes to invest in a robotics project. Based on the information from the above requirements, at what cash flow should San Lucas Corporation accept the project? (a) If the net cash flow is $700,000 (b) If the net cash flow is $900,000 (c) If the net cash flow is $500,000 (d) Both $700,000 and $900,000 net cash flow. d In the above given situation identify the statement that supports San Lucas Corporation's decision of accepting $700,000 and $900,000 net cash flows. (a) The net cash inflow is higher and in turn increases the profitability of the business. (b) The net present value and the cash flows are positive. (c) The net present value can be ignored and the decision based on the net cash inflow. (d) None of the above. b

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

External Audit Auditing Business Functions And Assets

Authors: Bart Rohman

1st Edition

B0B5NR6TB6, 979-8839201767

More Books

Students also viewed these Accounting questions