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. 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#40887 | Written in 18-Jul-2015Price : $27