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 calculationsand 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.;Straightforwardnet 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#40351 | Written in 18-Jul-2015Price : $25