Exercise 2 (Basic Present Value Concepts) Each of the following parts is independent. (Ignore income taxes.) 1. Amano Freightlines plans to build a new garage in three years to have more space for repairing its trucks. The garage will cost P400,000. What lump-sum amount should the company invest now to have the P400,000 available at the end of the three-year period? Assume that the company can invest money at: a. Eight percent. b. Twelve percent. 2. Lorna Products, Inc., can purchase a new copier that will save P5,000 per year in copying costs. The copier will last for six years and have no salvage value. What is the maximum purchase price that Lorna Products would be willing to pay for the copier if the company's required rate of return is: a. Ten percent? b. Sixteen percent? 3. Tom has just won the million-peso slot machine jackpot at a gambling casino. The casino will pay her P50,000 per year for 20 years as the" payoff. If Tom can invest money at a 10% rate of return, what is the present value of her winnings? Did she really win a million pesos? Explain.

Exercise 2 (Basic Present Value Concepts) Each of the following parts is independent. (Ignore income taxes.) 1. Amano Freightlines plans to build a new garage in three years to have more space for repairing its trucks. The garage will cost P400,000. What lump-sum amount should the company invest now to have the P400,000 available at the end of the three-year period? Assume that the company can invest money at: a. Eight percent. b. Twelve percent. 2. Lorna Products, Inc., can purchase a new copier that will save P5,000 per year in copying costs. The copier will last for six years and have no salvage value. What is the maximum purchase price that Lorna Products would be willing to pay for the copier if the company's required rate of return is: a. Ten percent? b. Sixteen percent? 3. Tom has just won the million-peso slot machine jackpot at a gambling casino. The casino will pay her P50,000 per year for 20 years as the" payoff. If Tom can invest money at a 10% rate of return, what is the present value of her winnings? Did she really win a million pesos? Explain.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

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Exercise 2 (Basic Present Value Concepts) Each of the following parts is independent. (Ignore income taxes.) 1. Amano Freightlines plans to build a new garage in three years to have more space for repairing its trucks. The garage will cost P400,000. What lump-sum amount should the company invest now to have the P400,000 available at the end of the three-year period? Assume that the company can invest money at: Eight percent. b. Twelve percent. а. 2. Lorna Products, Inc., can purchase a new copier that will save P5,000 per year in copying costs. The copier will last for six years and have no salvage value. What is the maximum purchase price that Lorna Products would be willing to pay for the copier if the company's required rate of return is: Ten percent? b. Sixteen percent? а. 3. Tom has just won the million-peso slot machine jackpot at a gambling casino. The casino will pay her P50,000 per year for 20 years 'as the payoff. If Tom can invest money at a 10% rate of return, what is the…
4. The OPM Company is planning to, purchase a machine. A choice is to be made out of two machine A and B, the details of which are given below. Particular Machine A Machine B Capital Cost Net Cash-flow after charging tax Average annual income 90,000 48,000 48,000 90,000 37,500 37,500 The expected serviceable life ofmachine A is 2 years and B 3 years. Sales expected to continue at the above rates for the full serviceable life of machine. The costs relate to annual expenditure to be incurred as a result of machines. Which is the most profitable investment by applying ARR? Return on
2.-DO IT IN EXCEL, AND SHOW THE FORMULASIf the company purchases the machine, its cost of $276,000 will be financed with a loan at 14.8% interest for three years requiring equal annual payments including principal and interest. The machine will be depreciated at 20% per year. The company will pay $8,000 per year for maintenance services. The company plans to keep the machine even after its payback period.What is the amount of the annual payment? A) $120,480.90 B) $85,442.71 C) $276,000.00 D) $361,442.71 (Choose one option)
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2.-DO IT IN EXCEL, AND SHOW THE FORMULASIf the company purchases the machine, its cost of $276,000 will be financed with a loan at 14.8% interest for three years requiring equal annual payments including principal and interest. The machine will be depreciated at 20% per year. The company will pay $8,000 per year for maintenance services. The company plans to keep the machine even after its payback period.What is the amount of the annual payment? A) $120,480.90 B) $85,442.71 C) $276,000.00 D) $361,442.71
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A company is considering a 3-year project with a projected net income of sh. 4M, 6M,5M in year 1, year 2 and year 3 respectively. The initial investment is sh. 40M and the salvage value is sh.2M.The company applies the straight line method for depreciating its assets, what is the Accounting Rate of Return? Assume a tax rate of 30% Select one: A. 26.3% B. 23.8% C.25% D. None of the above
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
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