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ACC206 Week-5

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Question;ACC206 Week Five Problems;Please complete the following 5 exercises below in either Excel or a;word document (but must be single document). You must show your work;where appropriate (leaving the calculations within Excel cells is;acceptable). Save the document, and submit it in the appropriate week;using the Assignment Submission button.;1. Basic present value calculations;Calculate the present value of the following cash flows, rounding to the nearest dollar;a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.;b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.;c. A single receipt of $15,000 at the end of Year 1 followed by a;single receipt of $10,000 at the end of Year 3. The company has a 10%;rate of return.;d. An annual receipt of $8,000 for three years followed by a single;receipt of $10,000 at the end of Year 4. The company has a 16% rate of;return.;2. Cash flow calculations and net present value;On January 2, 20X1, Bruce Greene invested $10,000 in the stock market;and purchased 500 shares of Heartland Development, Inc. Heartland paid;cash dividends of $2.60 per share in 20X1 and 20X2, the dividend was;raised to $3.10 per share in 20X3. On December 31, 20X3, Greene sold his;holdings and generated proceeds of $13,000. Greene uses the;net-present- value method and desires a 16% return on investments.;a. Prepare a chronological list of the investment's cash flows. Note: Greene is entitled to the 20X3 dividend.;b. Compute the investment's net present value, rounding calculations to the nearest dollar.;c. Given the results of part (b), should Greene have acquired the Heartland stock? Briefly explain.;3. Straightforward net present value and internal rate of return;The City of Bedford is studying a 600-acre site on Route 356 for a new;landfill. The startup cost has been calculated as follows;Purchase cost: $450 per acre;Site preparation: $175,000;The site can be used for 20 years before it reaches capacity. Bedford;which shares a facility in Bath Township with other municipalities;estimates that the new location will save $40,000 in annual operating;costs.;a. Should the landfill be acquired if Bedford desires an 8% return;on its investment? Use the net-present-value method to determine your;answer.;4. Straightforward net-present-value and payback computations;STL Entertainment is considering the acquisition of a sight-seeing boat;for summer tours along the Mississippi River. The following information;is available;Cost of boat $500,000;Service life 10 summer seasons;Disposal value at the end of 10 seasons $100,000;Capacity per trip 300 passengers;Fixed operating costs per season (including straight-line depreciation) $160,000;Variable operating costs per trip $1,000;Ticket price $5 per passenger;All operating costs, except depreciation, require cash outlays. On the;basis of similar operations in other parts of the country, management;anticipates that each trip will be sold out and that 120,000 passengers;will be carried each season. Ignore income taxes.;Instructions;By using the net-present-value method, determine whether STL;Entertainment should acquire the boat. Assume a 14% desired return on;all investments- round calculations to the nearest dollar.;5. Equipment replacement decision;Columbia Enterprises is studying the replacement of some equipment that;originally cost $74,000. The equipment is expected to provide six more;years of service if $8,700 of major repairs are performed in two years.;Annual cash operating costs total $27,200. Columbia can sell the;equipment now for $36,000, the estimated residual value in six years is;$5,000.;New equipment is available that will reduce annual cash operating costs;to $21,000. The equipment costs $103,000, has a service life of six;years, and has an estimated residual value of $13,000. Company sales;will total $430,000 per year with either the existing or the new;equipment. Columbia has a minimum desired return of 12% and depreciates;all equipment by the straight-line method.;Instructions;a. By using the net-present-value method, determine whether;Columbia should keep its present equipment or acquire the new equipment.;Round all calculations to the nearest dollar, and ignore income taxes.;b. Columbia's management feels that the time value of money should;be considered in all long-term decisions. Briefly discuss the rationale;that underlies management's belief.

 

Paper#40066 | Written in 18-Jul-2015

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