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ACC206 Week Five Problems

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Question;Please complete the following 5 exercises below in either Excel or a word document (but must be singledocument). You must show your work where appropriate (leaving the calculations within Excel cells isacceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.1. Basic present value calculationsCalculate 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 Year3. 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 valueOn 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 returnThe City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost has beencalculated as follows:Purchase cost: $450 per acreSite preparation: $175,000The site can be used for 20 years before it reaches capacity. Bedford, which shares a facility in Bath Townshipwith 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-presentvalue method to determine your answer.4. Straightforward net-present-value and payback computationsSTL Entertainment is considering the acquisition of a sight-seeing boat for summer tours along the MississippiRiver. The following information is available:Cost of boatService lifeDisposal value at the end of 10 seasonsCapacity per tripFixed operating costs per season (including straight-linedepreciation)Variable operating costs per tripTicket price$500,00010 summer seasons$100,000300 passengers$160,000$1,000$5 per passengerAll 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 decisionColumbia 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-termdecisions. Briefly discuss the rationale that underlies management's belief.

 

Paper#41923 | Written in 18-Jul-2015

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