Chapter 24: Q2E (page 1085)
Refer to the information in Exercise 24-1 and assume that Beyer requires a 10% return on its investments. Compute the net present value of this investment. (Round to the nearest dollar.) Should Beyer accept the investment?
The net present value is $364,699 and the project should be accepted.
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Yokam Company is considering two alternative projects. Project 1 requires an initial investment of \(400,000 and has a present value of cash flows of \)1,100,000. Project 2 requires an initial investment of \(4 million and has a present value of cash flows of \)6 million. Compute the profitability index for each project. Based on the profitability index, which project should the company prefer? Explain.
Project A requires a \(280,000 initial investment for new machinery with a five-year life and a salvage value of \)30,000. The company uses straight-line depreciation. Project A is expected to yield annual net income of $20,000 per year for the next five years. Compute Project A’s payback period.
Lenitnes Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of \(250,000 and will yield the following expected cash flows. Management requires investments to have a payback period of three years, and it requires a 10% return on its investments.
Period Cash Flow
1 . . . . . . . . . . . \)125,000
2 . . . . . . . . . . . 94,000
3 . . . . . . . . . . . 75,000
4 . . . . . . . . . . . 52,000
5 . . . . . . . . . . . 47,000
Required
1. Determine the payback period for this investment. (Round the answer to one decimal.)
2. Determine the break-even time for this investment. (Round the answer to one decimal.)
3. Determine the net present value for this investment.
Analysis Component
4. Should management invest in this project? Explain.
5. Compare your answers for parts 1 through 4 with those for Problem 24-5A. What are the causes of the differences in results and your conclusions?
Apple is considering expanding a store. Identify three methods management can use to evaluate whether to expand.
If Quail Company invests \(50,000 today, it can expect to receive \)10,000 at the end of each year for the next seven years, plus an extra $6,000 at the end of the seventh year. What is the net present value of this investment assuming a required 10% return on investments? (Round present value calculations to the nearest dollar.)
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