Answer:
The value of the option to wait is $0.70,option A.
Explanation:
In calculating the value of the option to wait,I discounted all cash flows under both alternatives, using the discount rate of 12% as given in the question.
Option to start now gives net present value(positive return ) of $360.64 while the other one gives $361.34,invariably option to wait one year gives $0.70($361.34-$360.64) more than the option to start now.
The formula used in the calculating present value is PV=FV(1+r)^n
Where PV=present value
FV=future value
r=rate of interest
n=number of year
Find attached spreadsheet for detailed calculations.
Answer
The answer and procedures of the exercise are attached in a microsoft excel document.
Explanation
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
Answer:
Present value of sales price = 465,395.16
Present Value of future cash flow= 465,359.16
Explanation:
The present value of a sum expected in the future is the worth today given an opportunity cost interest rate. In another words ,it is amount receivable today that would make the investor to be indifferent between the amount receivable today and the future sum.
The present value of a lump sum can be worked out as follows:
PV = FV × (1+r)^(-n)
Present Value of sales price= 3.1 × 1.11^(-6) =1.65739
Present Value=165,738.65
Present Value of an annuity of 110,000 for 6 years:
PV = A × 1- ( (1+r)^(-n))/r
PV = 110,000× (1-1.11^(-6))/0.11= 465,359.16
PV = 465,359.16
Answer: a. The firm must purchase lumpy assets to achieve the increase in sales.
Explanation:
EvenFlo Pipes needs to sell more pipes in order to see an increase in sales. Assuming they are the producers, they will need to produce more pipes than they have been doing and this will need them to increase their production capacity.
To do so they would have to invest in fixed assets as these are what produce pipes. This is why the firm will have to purchase lumpy assets that will help them produce and sell more pipes.
Answer:
$475,000
Explanation:
Calculation for By what amount would LBM credit capital in excess of par
Dr Cash $500,000
(25,000 shares*$20 per share)
Cr Common Stock $25,000
(25,000 shares*$1 per share)
Cr Capital in excess of par $475,000
($500,000-$25,000)
Therefore based on the above Journal entry and calculation the amount that LBM would credit as capital in excess of par will be $475,000 ($500,000-$25,000).
