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Harlamova29_29 [7]
3 years ago
8

Mary is in contract negotiations with a publishing house for her new novel. She has two options. She may be paid $100,000 up fro

nt, and receive royalties that are expected to total $26,000 at the end of each of the next five years. Alternatively, she can receive $200,000 up front and no royalties. Which of the following investment rules would indicate that she should take the former deal, given a discount rate of 8%?
Rule I: The Net Present Value rule
Rule II: The Payback Rule with a payback period of two years
Rule III: The internal rate of return (IRR) Rulea. Rule I onlyb. Rule III onlyc. Rule II and III onlyd. Rule I and II only
Business
1 answer:
Mazyrski [523]3 years ago
5 0

Rule I is correct.

<u>Explanation:</u>

Year Cash flow Pv at 8% Discounted cash flow

0           100000              1         100000

1            26000              0.9259 24074.074

2            26000               0.8573 22290.809

3             26000         0.7938 20639.638

4             26000      0.7350 19110.776

5             26000       0.6806 17695.163

From the above calculation, the net present value is $203810.46

          Option 1   Option 2

NPV 203810.5 200000

Payback    5 years   0 years

IRR             No IRR No IRR

NPV (Net present value) option say that former would be selected

So, answer is Rule I only.

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Nelson’s motto is “Go big, or go home.” Which type of investment would Nelson prefer? A. savings account B. speculative investme
il63 [147K]

Answer:speculative investment

Explanation:

just took the test.

5 0
3 years ago
Your firm is considering opening a branch office in Kyle. The office would cost $485,000 to build the office. During the office
wariber [46]

Answer:

The NPV from opening the branch office is negative ( -$106668.08). Thus the branch office should not be opened.

Explanation:

The decision to open the branch office will be taken based on the NPV provided by opening of the branch office. If the NPV of a project is positive based on the required rate of return used as a discount rate fro cash flows, the investment is worth undertaking.

The net present value (NPV) for a project can be calculated as,

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

Where,

  • r is the appropriate discount rate
  • Initial Outlay is the Initial cost of the project
  • CF represents cash flows from the project

As the required return is 16%, we will take this as the appropriate discount rate.

NPV = 45000 / (1+0.16)  +  120000 / (1+0.16)²  +  150000 / (1+0.16)³  +

150000 / (1+0.16)^4  +  150000 / (1+0.16)^5  -  485000

NPV = - $106668.08

As the NPV from project is negative at a required return of 16%, the project should not be under taken and the branch office should not be open.

7 0
2 years ago
Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for invento
Marat540 [252]

Answer:

Because this is an inter-entity balance then the amount that should be eliminated of this debt is the letter D. all the $400,000.

Explanation:

Inter entity balance facilitates the management of allocations and transfers between entities. They provide a better control over transactions spanning multiple entities, other benefit is that the accuracy of the financial data improves and finally and this is why the anser is option D. is that it keeps each entity in balance

4 0
2 years ago
Qs 20-13 manufacturing: direct materials budget lo p1 miami solar manufactures solar panels for industrial use. the company budg
Helen [10]

Calculation of Direct Material Budget for the month of July:

Budgeted production (Units) for July 5,000

Material required per unit (pounds) 3

Material requirement for July (pounds) = (5000 units * 3 pounds) 15,000

Add: Ending material inventory (5300 units * 3 pounds* 30%) 4,770

Less: Beginning material inventory 4,500

Direct Material Purchase (Pounds) (15000+4770-4500) = 15,270

Cost per pound of Metrial ($) $6.00

Direct Material Purchase ($) (15270 pounds * $6) = $91,620

7 0
3 years ago
Wildside Inc., a company that organizes wildlife tours, gives equal importance to customers and employees. The managers at Wilds
umka2103 [35]

Answer: Internal marketing

Explanation: Internal marketing is the process of facilitating a company's purposes or goals, commodities, and services to workers inside the company. It partakes to developed confidence and devotion among the workers also formulating an elevated amount of participation in the ultimate achievement of the company and encourages the development of the company's trademark public support or recommendation.

8 0
3 years ago
Read 2 more answers
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