Question;16-9Mr. Bruce Graham saved $250,000 during the 25years that he worked for a major corporation.Now he has retired at the age of 50 and has begun to draw a comfortable pension check everymonth. He wants to ensure the financial security of his retirement by investing his savings wiselyand is currently considering two investment opportunities. Both investments require an initialpayment of $187,500. The following table presents the estimated cash inflows for the twoalternatives.Opportunity #1Opportunity# 2Year 155,625102,500Year 258,750108,750Year 378,75017,500Year 4101,25015,000Mr. Graham decides to use his past average return on mutual fund investments as the discountrate, it is 8%.A. Compute the net present value of each opportunity. Which should Mr. Graham adopt based onthe net present value approach?B. Compute the payback period for each project. Which should Mr. graham adopt based on thepayback approach?C. Compare the net present value approach with the payback approach. Which method is betterin the given circumstances? Week 5 Additional (Problem 8-2): Basketball player decision8-2The Phoenix Kings of the United Basketball League have a moody center by the name ofOrlando Dawkins. Dawkins is under contract with the team and is scheduled to earn $650,000 inboth 20X3 and 20X4. A $75,000 salary increase will take effect in 20X5.Dawkins has not gotten along with several of his teammates and, as a result, management isexploring the possibility of a trade with the Philadelphia Rockets to acquire George Harper, a starplayer. The Kings would pay the Rockets $350,000 immediately for the trade to take place.Harper would be paid a $270,000 signing bonus at the beginning of 20X3 that management plansto expense over the next 3 years by using straight-line amortization. Harper's annual salarywould be $950,000 from 20X3 through 20X5, highest on the team because of his ability to attractfans. The Kings expect that increased attendance will produce added annual net cash inflows of$525,000.Phoenix officials believe that both players would play 3 more years for the Kings, at which timethey would become free agents and move along to other clubs. The Kings would receive$380,000 compensation from the other club for Dawkins, for Harper, the figure would increaseto $500,000. Regardless of whether the trade takes place, the Kings are obligated to pay Dawkins$200,000 at the end of 20X4 under the terms of his original contract.The Kings desire a rate of return of 14% and use the net present value method to analyzeinvestments. Round all calculations to the nearest dollar, and ignore income taxes.Instructions1.Determine whether the Kings should keep Dawkins or trade for Harper. Assume thetrade would occur on January 1, 20X3.2.Future cash flows are, in many cases, subject to change. List several events that couldoccur that might influence the cash flows in this situation.(Problem 8-3) Straight forward net present value and payback computationsThe Calgary Eskimos play in the Canadian Hockey League. Although the Eskimos will soon bemoving to a modern arena, management is studying the possibility of expanding the team'spresent facility to accommodate increased crowds. A $2.4 million expansion is planned that has a$200,000 residual value and will be depreciated by the straight-line method over four seasons.Information about the expansion follows:Number of seatsOccupancy rateTicket priceClass 1 seats2,50080%$6Class 2 seats2,000604The team will play 50 home games each season. Total added operating costs per game (ushers,cleanup, and depreciation) are expected to average $11,800. All such costs, except depreciation,require cash outlays.Instructions1.By using the net present value method and a 16% desired rate of return, determinewhether the expansion should be undertaken.2.In addition to the cash flows presented here, what other cash flows might change if theEskimos add on to the arena?Week 5 Assignment 3Expand your analysis of a topic covered in chapter 10 into a 1 to 2 page APA style paper. Includeyour assessment of the topics? application in managerial accounting. Include examples.Chapter 10 An Introduction to Managerial accountingCarefully review the Grading Rubric for the criteria that will be used to evaluate yourassignment.
Paper#44766 | Written in 18-Jul-2015Price : $29