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djverab [1.8K]
3 years ago
6

A company is evaluating an investment which has an initial investment of $4,000. Annual net cash flows is expected to be $2,000

over the next three years. The company requires a 10% annual return. The present value of an annuity factor for 10% and 3 periods is 2.4869. The present value of $1 factor for 10% and 3 periods is 0.7513. The net present value is (round your answer to the nearest whole dollar).
Business
1 answer:
uysha [10]3 years ago
4 0

Answer:

The NPV of the project is $974.

Explanation:

The net present value is the today's value of a stream of cash flows. The net present value will be the sum of all the expected future cash flows from a project less the initial investment required for the project and it is used to evaluate the investment decisions.

The net present value of an investment project will be:

NPV = CF1 / (1+r) + CF2 / (1+r)^2 + ... + CFn / (1+r)^n - Initial investment

or

If the cash flows are constant or of same amount through out, occur after the same interval of time and are for a defined period of time, they become an annuity and the NPV of such a project can be calculated by,

NPV = (Cash flow per period * Present value of Annuity factor) - Initial cost

The NPV of this project will be = (2000 * 2.4869) - 4000 = 973.8 rounded off to $974

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Answer:

Explanation:

On July 1, 2019, Cullumber Company pays $12,000 to Kalter Insurance Co. for a 3-year insurance contract.

For Cullumber Company:

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Being payment for prepaid Insurance.

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On April 1, 2021, Shoemaker Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules,
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Answer:

Shoemarket Corporation

Journal Entries:

April 1, 2021:

Debit Notes Receivable $490,000

Credit Cash Account $490,000

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December 31, 2021:

Debit Interest on Notes Receivable $36,750

Credit Interest on Notes $36,750

To accrue interest on notes for the year.

April 1, 2022:

Debit Cash Account $539,000

Credit Notes Receivable $490,000

Credit Interest on Notes Receivable $36,750

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Explanation:

a) The acceptance of  notes receivable increases the Notes Receivable account and reduces the Cash Account by $490,000.

b) Due to the accrual concept and the matching principle, on December 31, 2021, interest on notes receivable will be accrued.  This is calculated as follows:

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c) On April 1, 2022, when the cash collection of the note and interest is made, the Cash received will total $539,000 ($490,000 + 10% Interest for a year).  This is worked as $490,000 x 10% = $49,000.  But, already interest for 2021 had been accrued.  The difference is now accrued in 2022.

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Universal Foods issued 10% bonds, dated January 1, with a face amount of $260 million on January 1, 2018. The bonds mature on De
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Answer:

The bonds were issued at $220,879,628.13

This is lower than the face value to compensate for the lower coupon payment.

cash               220,879,628.13   debit

discount on BP  39,120,371.87   debit

   bonds payable      260,000,000 credit

--to record the issuance of the bonds--

Interest expense 13,252,777.69 debit

Discoun on BP               252,777.69 credit

 cash          13,000,000      credit

--to record the first interest payment--

Interest expense 13,267,944.35 debit

        Discount on BP                267,944.35 credit

 Cash          13,000,000     credit

--to record second interest payment--

Interest expense 13,539,156.67 debit

Discount on BP              539,156.67 credit

cash                   13,000,000.00 credit

--to record Dec 31st, 2025 payment--

Explanation:

To determinate the price we will solve for the present value of the coupon payment and maturity at the market rate of %12

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

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time 20 years x 2 payment per year 40

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13000000 \times \frac{1-(1+0.06)^{-40} }{0.06} = PV\\

PV $195,601,859.3298

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity   260,000,000.00

time   40.00

rate  0.06

\frac{260000000}{(1 + 0.06)^{40} } = PV  

PV   25,277,768.80

PV c $195,601,859.3298

PV m  $25,277,768.8042

Total $220,879,628.1340

For the journal entries, we will multiply this current market price of the bonds by the market rate (YTM) the difference between this and the actual cash obligation generate by the bond is the amortization of the discount.

<u>first interest payment </u>

$220,879,628.13 x 6% = 13,252,777.69

less actual cash outlay:  13,000,000

amortization                          252,777.69

<u>second interest payment</u>

($220,879,628.13- $252,777.69) x 6% = 13,267,944.35

less actual cash outlay:                      <u>     13,000,000.00</u>

amortization                                                   267,944.35

December 31st, 2025:

This will be payment 14th

after building the schedule until that date we got:

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