Most Optimistic Likely Pessimistic Capital investment $90,000 $100,000 $120,000 Useful life 12 years $30,000 $35,000 10 years $20,000 6 уears $0 $20,000 Market value Net annual $30,000 cash flow MARR 10% 10% 10% (per year)

Most Optimistic Likely Pessimistic Capital investment $90,000 $100,000 $120,000 Useful life 12 years $30,000 $35,000 10 years $20,000 6 уears $0 $20,000 Market value Net annual $30,000 cash flow MARR 10% 10% 10% (per year)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 9EA: If you invest $12,000 today, how much will you have in (for further Instructions on future value in...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Suppose that, for a certain potential investment project, the optimistic, most likely, and pessimistic estimates are as shown in the accompanying table. Solve, a. What is the AW for each of the three estimation conditions? b. It is thought that the most critical factors are useful life and net annual cash flow. Develop a table showing the net AW for all combinations of the estimates for
these two factors, assuming all other factors to be at their most likely values.

Most
Optimistic
Likely
Pessimistic
Capital
investment
$90,000
$100,000 $120,000
Useful life
12 years
$30,000
$35,000
10 years
$20,000
6 уears
$0
$20,000
Market value
Net annual
$30,000
cash flow
MARR
10%
10%
10%
(per year)

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