Homework #10 (Chapter 12)-Ratrri Gomes PDF

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Homework #10 (Chapter 12)-Ratrri Gomes

https://xlitemprod.pearsoncmg.com/api/v1/print/accounting Instructor: Thomas Clausen Course: ACC 242 - Managerial Accounting I (Spring 2017)

Student: Ratrri Gomes Date: 4/26/17

Assignment: Homework #10 (Chapter 12)

1. River Wild is considering purchasing a water park in Atlanta, Georgia , for $2,300,000. The new facility will generate annual net cash inflows of $525,000 for ten years. Engineers estimate that the facility will remain useful forten years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 10% or more. Management uses a 14 % hurdle rate on investments of this nature. 1 (Click the icon to view the present value annuitytable.) 2 (Click the icon to view the present valuetable.) 3 (Click the icon to view the future value annuitytable.) 4 (Click the icon to view the future valuetable.)          Read the requirements5 . Review Only

Click the icon to see the Worked Solution. Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment.(If you use the tables to compute the IRR, answer with the closest interest rate shown in thetables.) (Round the payback period to one decimal place.) The payback period is

4.4 years.

(Round the percentage to the nearest tenthpercent.) The ARR (accounting rate of return) is

12.8 %.

(Round your answer to the nearest whole dollar.) Net present value $

438,400

The IRR (internal rate of return) is between 18% and 20% . Requirement 2. Recommend whether the company should invest in this project. Recommendation: Invest in the new facility.

1: Reference

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Homework #10 (Chapter 12)-Ratrri Gomes

https://xlitemprod.pearsoncmg.com/api/v1/print/accounting Present Value of Annuity of $1

Periods

1%

2%

3%

4%

5%

6%

8%

10%

12%

14%

16%

18%

20%

1 2 3 4 5

0.990 1.970 2.941 3.902 4.853

0.980 1.942 2.884 3.808 4.713

0.971 1.913 2.829 3.717 4.580

0.962 1.886 2.775 3.630 4.452

0.952 1.859 2.723 3.546 4.329

0.943 1.833 2.673 3.465 4.212

0.926 1.783 2.577 3.312 3.993

0.909 1.736 2.487 3.170 3.791

0.893 1.690 2.402 3.037 3.605

0.877 1.647 2.322 2.914 3.433

0.862 1.605 2.246 2.798 3.274

0.847 1.566 2.174 2.690 3.127

0.833 1.528 2.106 2.589 2.991

6 7 8 9 10

5.795 6.728 7.652 8.566 9.471

5.601 6.472 7.325 8.162 8.983

5.417 6.230 7.020 7.786 8.530

5.242 6.002 6.733 7.435 8.111

5.076 5.786 6.463 7.108 7.722

4.917 5.582 6.210 6.802 7.360

4.623 5.206 5.747 6.247 6.710

4.355 4.868 5.335 5.759 6.145

4.111 4.564 4.968 5.328 5.650

3.889 4.288 4.639 4.946 5.216

3.685 4.039 4.344 4.607 4.833

3.498 3.812 4.078 4.303 4.494

3.326 3.605 3.837 4.031 4.192

11 12 13 14 15

10.368 11.255 12.134 13.004 13.865

9.787 9.253 10.575 9.954 11.348 10.635 12.106 11.296 12.849 11.938

8.760 8.306 9.385 8.863 9.986 9.394 10.563 9.899 11.118 10.380

7.887 8.384 8.853 9.295 9.712

7.139 7.536 7.904 8.244 8.559

6.495 6.814 7.103 7.367 7.606

5.938 6.194 6.424 6.628 6.811

5.453 5.660 5.842 6.002 6.142

5.029 5.197 5.342 5.468 5.575

4.656 4.793 4.910 5.008 5.092

4.327 4.439 4.533 4.611 4.675

20 25 30 40

18.046 22.023 25.808 32.835

16.351 14.877 19.523 17.413 22.396 19.600 27.355 23.115

13.590 15.622 17.292 19.793

11.470 9.818 12.783 10.675 13.765 11.258 15.046 11.925

8.514 9.077 9.427 9.779

7.469 7.843 8.055 8.244

6.623 6.873 7.003 7.105

5.929 6.097 6.177 6.233

5.353 5.467 5.517 5.548

4.870 4.948 4.979 4.997

12.462 14.094 15.372 17.159

2: Reference Present Value of $1 Periods

1%

2%

3%

4%

5%

6%

8%

10%

12%

14%

16%

18%

20%

1 2 3 4 5

0.990 0.980 0.971 0.961 0.951

0.980 0.961 0.942 0.924 0.906

0.971 0.943 0.915 0.888 0.863

0.962 0.925 0.889 0.855 0.822

0.952 0.907 0.864 0.823 0.784

0.943 0.890 0.840 0.792 0.747

0.926 0.857 0.794 0.735 0.681

0.909 0.826 0.751 0.683 0.621

0.893 0.797 0.712 0.636 0.567

0.877 0.769 0.675 0.592 0.519

0.862 0.743 0.641 0.552 0.476

0.847 0.718 0.609 0.516 0.437

0.833 0.694 0.579 0.482 0.402

6 7 8 9 10

0.942 0.933 0.923 0.914 0.905

0.888 0.871 0.853 0.837 0.820

0.837 0.813 0.789 0.766 0.744

0.790 0.760 0.731 0.703 0.676

0.746 0.711 0.677 0.645 0.614

0.705 0.665 0.627 0.592 0.558

0.630 0.583 0.540 0.500 0.463

0.564 0.513 0.467 0.424 0.386

0.507 0.452 0.404 0.361 0.322

0.456 0.400 0.351 0.308 0.270

0.410 0.354 0.305 0.263 0.227

0.370 0.314 0.266 0.225 0.191

0.335 0.279 0.233 0.194 0.162

11 12 13 14 15

0.896 0.887 0.879 0.870 0.861

0.804 0.788 0.773 0.758 0.743

0.722 0.701 0.681 0.661 0.642

0.650 0.625 0.601 0.577 0.555

0.585 0.557 0.530 0.505 0.481

0.527 0.497 0.469 0.442 0.417

0.429 0.397 0.368 0.340 0.315

0.350 0.319 0.290 0.263 0.239

0.287 0.257 0.229 0.205 0.183

0.237 0.208 0.182 0.160 0.140

0.195 0.168 0.145 0.125 0.108

0.162 0.137 0.116 0.099 0.084

0.135 0.112 0.093 0.078 0.065

20 25 30 40

0.820 0.780 0.742 0.672

0.673 0.610 0.552 0.453

0.554 0.478 0.412 0.307

0.456 0.375 0.308 0.208

0.377 0.295 0.231 0.142

0.312 0.233 0.174 0.097

0.215 0.146 0.099 0.046

0.149 0.092 0.057 0.022

0.104 0.059 0.033 0.011

0.073 0.038 0.020 0.005

0.051 0.024 0.012 0.003

0.037 0.016 0.007 0.001

0.026 0.010 0.004 0.001

3: Reference

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Homework #10 (Chapter 12)-Ratrri Gomes

https://xlitemprod.pearsoncmg.com/api/v1/print/accounting Future Value of Annuity of $1

Periods

1%

2%

3%

4%

5%

6%

8%

10%

12%

14%

16%

1 2 3 4 5

1.000 2.010 3.030 4.060 5.101

1.000 2.020 3.060 4.122 5.204

1.000 2.030 3.091 4.184 5.309

1.000 2.040 3.122 4.246 5.416

1.000 2.050 3.153 4.310 5.526

1.000 2.060 3.184 4.375 5.637

1.000 2.080 3.246 4.506 5.867

1.000 2.100 3.310 4.641 6.105

1.000 2.120 3.374 4.779 6.353

1.000 2.140 3.440 4.921 6.610

1.000 2.160 3.506 5.066 6.877

1 2 3 5 7

6 7 8 9 10

6.152 7.214 8.286 9.369 10.462

6.308 7.434 8.583 9.755 10.950

6.468 7.662 8.892 10.159 11.464

6.633 7.898 9.214 10.583 12.006

6.802 8.142 9.549 11.027 12.578

6.975 8.394 9.897 11.491 13.181

7.336 8.923 10.637 12.488 14.487

7.716 9.487 11.436 13.579 15.937

8.115 10.089 12.300 14.776 17.549

8.536 10.730 13.233 16.085 19.337

8.977 11.414 14.240 17.519 21.321

9 1 1 1 2

11 12 13 14 15

11.567 12.683 13.809 14.947 16.097

12.169 13.412 14.680 15.974 17.293

12.808 14.192 15.618 17.086 18.599

13.486 15.026 16.627 18.292 20.024

14.207 15.917 17.713 19.599 21.579

14.972 16.870 18.882 21.015 23.276

16.645 18.977 21.495 24.215 27.152

18.531 21.384 24.523 27.975 31.772

20.655 24.133 28.029 32.393 37.280

23.045 27.271 32.089 37.581 43.842

25.733 30.850 36.786 43.672 51.660

2 3 4 5 6

20 25 30 40

22.019 28.243 34.785 48.886

24.297 32.030 40.568 60.402

26.870 36.459 47.575 75.401

29.778 41.646 56.085 95.026

33.066 47.727 66.439 120.800

36.786 54.865 79.058 154.762

45.762 73.106 113.283 259.057

57.275 98.347 164.494 442.593

72.052 133.334 241.333 767.091

91.025 115.380 181.871 249.214 356.787 530.312 1,342.025 2,360.757

14 34 79 4,1

4: Reference Future Value of $1 Periods

1%

2%

3%

4%

5%

6%

8%

10%

12%

14%

16%

1 2 3 4 5

1.010 1.020 1.030 1.041 1.051

1.020 1.040 1.061 1.082 1.104

1.030 1.061 1.093 1.126 1.159

1.040 1.082 1.125 1.170 1.217

1.050 1.103 1.158 1.216 1.276

1.060 1.124 1.191 1.262 1.338

1.080 1.166 1.260 1.360 1.469

1.100 1.210 1.331 1.464 1.611

1.120 1.254 1.405 1.574 1.762

1.140 1.300 1.482 1.689 1.925

1.160 1.346 1.561 1.811 2.100

1 1 1 1 2

6 7 8 9 10

1.062 1.072 1.083 1.094 1.105

1.126 1.149 1.172 1.195 1.219

1.194 1.230 1.267 1.305 1.344

1.265 1.316 1.369 1.423 1.480

1.340 1.407 1.477 1.551 1.629

1.419 1.504 1.594 1.689 1.791

1.587 1.714 1.851 1.999 2.159

1.772 1.949 2.144 2.358 2.594

1.974 2.211 2.476 2.773 3.106

2.195 2.502 2.853 3.252 3.707

2.436 2.826 3.278 3.803 4.411

2 3 3 4 5

11 12 13 14 15

1.116 1.127 1.138 1.149 1.161

1.243 1.268 1.294 1.319 1.346

1.384 1.426 1.469 1.513 1.558

1.539 1.601 1.665 1.732 1.801

1.710 1.796 1.886 1.980 2.079

1.898 2.012 2.133 2.261 2.397

2.332 2.518 2.720 2.937 3.172

2.853 3.138 3.452 3.797 4.177

3.479 3.896 4.363 4.887 5.474

4.226 4.818 5.492 6.261 7.138

5.117 5.936 6.886 7.988 9.266

6 7 8 1 1

20 25 30 40

1.220 1.282 1.348 1.489

1.486 1.641 1.811 2.208

1.806 2.094 2.427 3.262

2.191 2.666 3.243 4.801

2.653 3.386 4.322 7.040

3.207 4.292 5.743 10.286

4.661 6.848 10.063 21.725

6.727 10.835 17.449 45.259

9.646 17.000 29.960 93.051

13.743 26.462 50.950 188.884

19.461 40.874 85.850 378.721

2 6 14 75

5: Requirements

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Homework #10 (Chapter 12)-Ratrri Gomes

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1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (If you use the tables to compute the IRR, answer with the closest interest rate shown in thetables.) 2. Recommend whether the company should invest in this project.

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Homework #10 (Chapter 12)-Ratrri Gomes

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2. Solve various time value of money scenarios. 6(Click the icon to view the scenarios.) 7 (Click the icon to view the present value of$1 table.) 9

(Click the icon to view the future value of$1 table.)

8

(Click the icon to view the present value of annuity of$1 tab

10

(Click the icon to view the future value of annuity of $1 table Review Only

Click the icon to see the Worked Solution. Scenario 1. Ad am just hit the jackpot in Las Vegas and won$55,000 ! If he invests it now at a 12% interest rate, how much will it be worth in 1 5 years?(Round your answer to the nearest wholedollar.) Future value

301,046

=$

Scenario 2. Ev an would like to have $2 ,000,000 saved by the time he retires in 40 years. How much does he need to invest now at a 10 % interest rate to fund his retirement goal? (Round your answer to the nearest whole dollar.) 44,190

Present value = $

Scenario 3. Assume that Stepha nie accumulates savings of $1 million by the time she retires. If she invests this savings at 8 %, how much money will she be able to withdraw at the end of each year for20 years? (Round your answer to the nearest whole dollar and enter as a positiveamount.) Amount able to withdraw

=$

101,854

Scenario 4. Cat hy plans to invest $6,5 00 at the end of each year for the next seven years. Assuming a 1 2 % interest rate, what will her investment be worth se ve n years from now?(Round your answer to the nearest whole dollar.) Future value

=$

65,579

Scenario 5. Assuming a 12% interest rate,how much would S ara h have to invest now to be able to withdraw $9,0 00 at the end of every year for the nextnin e years? (Round your answer to the nearest wholedollar.) Present value = $

47,952

Scenario 6. Nick is considering a capital investment that costs$ 510, 00 0 and will provide net cash inflows for three years.11 Using a hurdle rate of 1 2%, find the NPV of the investment.(Round your answer to the nearest whole dollar. Use parentheses or a minus sign to represent a negativeNPV.) Net Present Value (NPV)

=$

2,934

Scenario 7. What is the IRR of the capital investment described in Question6? The IRR is the interest rate at which the investmentNPV = 0. We tried 1 2% in question 6, now we'll try 14 % and calculate the NPV. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign to represent a negativeNPV.) Net Present Value (NPV)

=$

(11,646)

The IRR for the project is between 12% and 14% .

6: More Info

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Homework #10 (Chapter 12)-Ratrri Gomes

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1. Ada m just hit the jackpot in Las Vegas and won$ 55,0 00! If he invests it now at a 1 2% interest rate, how much will it be worth in 1 5 years? 2. Evan would like to have $ 2,00 0,0 00 saved by the time he retires in40 years. How much does he need to invest now at a 10% interest rate to fund his retirementgoal? 3. Assume that St epha nie accumulates savings of$1 million by the time she retires. If she invests this savings at8%, how much money will she be able to withdraw at the end of each year for20 years? 4. Cathy plans to invest $ 6,500 at the end of each year for the next seven years. Assuming a 12% interest rate, what will her investment be worth s eve n years from now? 5. Assuming a 12 % interest rate, how much would Sarah have to invest now to be able to withdraw$9,000 at the end of every year for the next nine years? 6. Nick is considering a capital investment that costs $510, 00 0 and will provide the following net cash inflows: Year

Net Cash Inflow

1. . . . . . . .

$308,000

2. . . . . . . .

$202,000

3. . . . . . . .

$108,000

Using a hurdle rate of 12 %, find the NPV of the investment. 7. What is the IRR of the capital investment described in Question 6?

7: Reference Present Value of $1 Periods

1%

2%

3%

4%

5%

6%

8%

10%

12%

14%

16%

18%

20%

1 2 3 4 5

0.990 0.980 0.971 0.961 0.951

0.980 0.961 0.942 0.924 0.906

0.971 0.943 0.915 0.888 0.863

0.962 0.925 0.889 0.855 0.822

0.952 0.907 0.864 0.823 0.784

0.943 0.890 0.840 0.792 0.747

0.926 0.857 0.794 0.735 0.681

0.909 0.826 0.751 0.683 0.621

0.893 0.797 0.712 0.636 0.567

0.877 0.769 0.675 0.592 0.519

0.862 0.743 0.641 0.552 0.476

0.847 0.718 0.609 0.516 0.437

0.833 0.694 0.579 0.482 0.402

6 7 8 9 10

0.942 0.933 0.923 0.914 0.905

0.888 0.871 0.853 0.837 0.820

0.837 0.813 0.789 0.766 0.744

0.790 0.760 0.731 0.703 0.676

0.746 0.711 0.677 0.645 0.614

0.705 0.665 0.627 0.592 0.558

0.630 0.583 0.540 0.500 0.463

0.564 0.513 0.467 0.424 0.386

0.507 0.452 0.404 0.361 0.322

0.456 0.400 0.351 0.308 0.270

0.410 0.354 0.305 0.263 0.227

0.370 0.314 0.266 0.225 0.191

0.335 0.279 0.233 0.194 0.162

11 12 13 14 15

0.896 0.887 0.879 0.870 0.861

0.804 0.788 0.773 0.758 0.743

0.722 0.701 0.681 0.661 0.642

0.650 0.625 0.601 0.577 0.555

0.585 0.557 0.530 0.505 0.481

0.527 0.497 0.469 0.442 0.417

0.429 0.397 0.368 0.340 0.315

0.350 0.319 0.290 0.263 0.239

0.287 0.257 0.229 0.205 0.183

0.237 0.208 0.182 0.160 0.140

0.195 0.168 0.145 0.125 0.108

0.162 0.137 0.116 0.099 0.084

0.135 0.112 0.093 0.078 0.065

20 25 30 40

0.820 0.780 0.742 0.672

0.673 0.610 0.552 0.453

0.554 0.478 0.412 0.307

0.456 0.375 0.308 0.208

0.377 0.295 0.231 0.142

0.312 0.233 0.174 0.097

0.215 0.146 0.099 0.046

0.149 0.092 0.057 0.022

0.104 0.059 0.033 0.011

0.073 0.038 0.020 0.005

0.051 0.024 0.012 0.003

0.037 0.016 0.007 0.001

0.026 0.010 0.004 0.001

8: Reference

6 of 13

4/26/17 9:46 PM

Homework #10 (Chapter 12)-Ratrri Gomes

https://xlitemprod.pearsoncmg.com/api/v1/print/accounting Present Value of Annuity of $1

Periods

1%

2%

3%

4%

5%

6%

8%

10%

12%

14%

16%

18%

20%

1 2 3 4 5

0.990 1.970 2.941 3.902 4.853

0.980 1.942 2.884 3.808 4.713

0.971 1.913 2.829 3.717 4.580

0.962 1.886 2.775 3.630 4.452

0.952 1.859 2.723 3.546 4.329

0.943 1.833 2.673 3.465 4.212

0.926 1.783 2.577 3.312 3.993

0.909 1.736 2.487 3.170 3.791

0.893 1.690 2.402 3.037 3.605

0.877 1.647 2.322 2.914 3.433

0.862 1.605 2.246 2.798 3.274

0.847 1.566 2.174 2.690 3.127

0.833 1.528 2.106 2.589 2.991

6 7 8 9 10

5.795 6.728 7.652 8.566 9.471

5.601 6.472 7.325 8.16...