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sesenic [268]
3 years ago
7

Ginny Trueblood is considering an investment which will cost her $120,000. The investment produces no cash flows for the first y

ear. In the second year the cash inflow is $35,000. This inflow will increase to $55,000 and then $75,000 for the following two years before ceasing permanently. Ginny requires a 10% rate of return and has a required discounted payback period of three years. Ginny should this project because the discounted payback period is___________ . A.accept; 2.03 years B.accept; 2.97 years C.accept; 3.97 years D.reject; 3.03 years E.reject; 3.97 years

Business
1 answer:
velikii [3]3 years ago
6 0

Answer:

The project should be rejected as the payback period of 3.97 years exceeds the required 3 years. So, the correct option is E

Explanation:

The table showing the discounted cash flows of each year:

Computing discounted payback as:

Discounted Payback = Number of years + (Initial Cost - Discounted Cash flow of year 1 + Discounted Cash flow of year 2 + Discounted Cash flow of year 3 / Discounted Cash flow of year 4)

= 3 + ($120,000 - $0 - $28,925.62  - $41,322.31  / $51,226.01)

= 3 + ($49,752.07 / $51,226.01)

= 3 + 0.97

= 3.97

Working Note:

Discounted Cash Flow is computed as:

Discounted cash flow = Cash Flow / (1 + r) ^ n

where

r is rate of return that is 10%

n is number of year

So,

For 1st year:

= $0 / (1 + 0.1) ^1

= $0

For 2nd year:

= $35,000 / (1 + 0.1) ^ 2

= $35,000 / 1.21

= $28,925.61

For 3rd year:

= $55,000 / (1 + 0.1) ^ 3

= $55,000 / 1.331

= $41,322.31

For 4th year:

= $75,000 / (1 + 0.1) ^ 4

= $75,000 / 1.4641

= $51,226.01

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butalik [34]

Answer:

D

Explanation:

See attached file

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2 years ago
Allowance for Doubtful Accounts has a debit balance of $2,300 at the end of the year (before adjustment). The company prepares a
Alina [70]

Answer:

d. Debit Bad Debt Expense, $34,200; credit Allowance for Doubtful Accounts, $34,200

Explanation:

allowance balance                           2,300 debit

estimated uncollectible accounts   31,900 credit

adjustment needed                         34,200 credit

We need to adjust the allowance to our estimated uncollectible account. Currently, it has 2,300 debit balance. We need to increase it to 31,900

If we think it in two steps:

We need to credit by 2,300 to have zero balance,

and then 31,900 to reach the expected uncollectible amount

in total a credit for 34,200 needs to be done

<u>The adjusting entry will be:</u>

bad debt expense                       34,200 debit

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8 0
3 years ago
Beyond-the-Sea Corporation and Homeport Company make a deal for Homeport's products, via e-records. Under the UETA, an e-record
Gelneren [198K]

Answer: d. leaves the sender's control.

Explanation:

Under the Uniform Electronic Transaction Act(UETA), there are three conditions that must be met for an e-record to be considered sent and the relevant one here is that the e-record leaves the control of the sender.

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4 0
3 years ago
Variable costs A. are fixed per unit and vary in total as production levels change. B. are fixed in total as production levels c
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Answer: Option A

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The electricity consumption is fixed per unit, but if the level of production rises the electricity bill also rises as more units will be consumed.

Hence, from the above we can conclude that the right option is A.

8 0
2 years ago
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Free_Kalibri [48]

Answer:

4.56%

Explanation:

The annual percentage rate refers to the rate at which the loan amount is equal to the present value of cash flows

In mathematically

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The 72 months is

= 6 years × 12 months

= 72 months

7 0
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