Chapter 26: Q6RQ (page 1463)
List some common cash outflows from capital investments.
Short Answer
Acquisition cost, cash operating expense, and cash paid for maintenance, repair, and refurbishment.
Chapter 26: Q6RQ (page 1463)
List some common cash outflows from capital investments.
Acquisition cost, cash operating expense, and cash paid for maintenance, repair, and refurbishment.
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Get started for freeExplain the difference between capital assets, capital investments, and capital budgeting.
How does compound interest differ from simple interest?
Use the Present Value of \(1 table (Appendix A, Table A-1) to determine the present value of \)1 received one year from now. Assume a 8% interest rate. Use the same table to find the present value of \(1 received two years from now. Continue this process for a total of five years. Round to three decimal places.
Requirements
1. What is the total present value of the cash flows received over the five-year period?
2. Could you characterize this stream of cash flows as an annuity? Why or why not?
3. Use the Present Value of Ordinary Annuity of \)1 table (Appendix A, Table A-2) to determine the present value of the same stream of cash flows. Compare your results to your answer to Requirement 1.
4. Explain your findings.
Cornell Company is considering a project with an initial investment of \(596,500 that is expected to produce cash inflows of \)125,000 for nine years. Cornellโs required rate of return is 12%.
14. What is the NPV of the project?
15. What is the IRR of the project?
16. Is this an acceptable project for Cornell?
Calculate the present value of the following future cash flows, rounding all calculations to the nearest dollar.
11. \(5,000 received in three years with interest of 10%
12. \)5,000 received in each of the following three years with interest of 10%
13. Payments of \(2,000, \)3,000, and $4,000 received in years 1, 2, and 3, respectively, with interest of 7%
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