1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
vovangra [49]
3 years ago
11

Toy Town is considering a new toy that will cost $49,100 in startup costs. The toy is expected to produce cash flows of $47,500

in Year 1 and $18,600 in Year 2. The toy will be discontinued after the second year. The discount rate assigned to the toy is 14.9 percent. Should the toy be produced? What is the IRR?
Business
1 answer:
Tasya [4]3 years ago
4 0

Answer:

NPV with a 14.9% discount rate: 6,329.06

The toy should be produced as the NPV is positive.

IRR = 26.65%

Explanation:

First we calculate for the NPV using the given discount rate of 14.9%

We will calculate the present value of each year cash inflow:

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

Year 1 cash inflow: 47,500.00

time   1.00

rate  0.149

\frac{47500}{(1 + 0.149)^{1} } = PV  

PV   41,340.30

Year 2 cash inflow:  18,600.00

time   2.00

rate  0.149

\frac{18600}{(1 + 0.149)^{2} } = PV  

PV   14,088.76

Then, we add them and subtract the investment to get NPV

NPV = 14,088.76 + 41,340.3 - 49,100 = 6,329.06

The toy should be produced as the NPV is positive.

Now for the IRR

That is the rate at which NPV equals zero we can solve for this using the quadratic equation as there are only two cash flow:

Year 1 will discount at (1+IRR)

Year 2 will be discount at (1+IRR )^2

So we can express and recreate the quadratic formula:

18,600 X^2 + 47,500 X - 49,500 = 0

A = 18,600

B = 47,500

C = -49,100

x_1 = \frac{-b+\sqrt{b^{2} -4ac}}{2a}\\x_2 = \frac{-b -\sqrt{b^{2} -4ac}}{2a}

We can solve and get:

x1 =  0.78957

x2 = -3.3433

We take the positive value.

and now solve for IRR

\frac{1}{1+ IRR} = 0.78957\\IRR = \frac{1}{0.78957} -1

IRR = 0,2665121 = 26.65%

This will be the IRR for the project.

You might be interested in
Marks Consulting purchased equipment costing $45,000 on January 1, Year 1. The equipment is estimated to have a salvage value of
Tasya [4]

Answer:

B) Debit to accumulated depreciation for $22,500.

Explanation:

As for the information provided,

Depreciation under straight line method for each year = ($45,000 - $5,000)/8 = $5,000 for each year.

Depreciation for 4 years = $5,000 \times 4 = $20,000

Depreciation in 5th year for 6 months = $5,000/2 = $2,500

Total depreciation till 1 July Year 5 = $20,000 + $2,500 = $22,500

Carrying value of equipment in books as on date of sale = $45,000 - $22,500 = $22,500

Sale price = $20,000

Profit or loss on sale of equipment = $20,000 - $22,500 = - $2,500

So therefore, there is loss of $2,500

Thus, option c and option d are invalid.

Further cash received on sale is debited and not credited thus, option a is also invalid.

As the total accumulated depreciation = $22,500

The correct entry will include debit to accumulated depreciation of $22,500.

Thus, option b is correct.

6 0
3 years ago
Lawrence got a car loan from a bank, with the car as collateral. What kind of loan did he get?
Vinvika [58]
A. a secured loan.....
3 0
3 years ago
Many business people believe that marketing should focus on factors other than financial goals, such as ___.
Sindrei [870]

Answer:

Corporate citizenry

Explanation:

Many business people believe that marketing should focus on factors other than financial goals, such as Corporate citizenry

3 0
3 years ago
All the long-term debt of a government, including the long-term debt that will be financed by Enterprise Fund revenues, is repor
Studentka2010 [4]

Answer: False

Explanation:

False.

Long term debt is a debt owed by an economic entity which could either be the inividual, a business or the government and such debts are expected to mature in a period of at least one year.

It should be noted that the long term debt isn't reported in fund level financial statement but rather it's reported in government wide statements.

3 0
3 years ago
Use the following information to determine a company‘s cash flows from financing activities.a. Net income was 535.000.b. Issued
navik [9.2K]

Answer:

The company‘s cash flows from financing activities is ($12,600), or cash deficit of $12,600

Explanation:

The cash flow from financing activities = Cash inflows from issuing equity or debt – dividend paid out – repurchasing equity or debt

= Issued common stock for $64,000 cash - Paid cash dividend of $14,600 - Paid $50,000 cash to settle a bond payable - Paid $12,000 cash to acquire its treasury stock

= $64,000 - $14,600 - $50,000 - $12,000 = ($12,600)

7 0
3 years ago
Other questions:
  • : In 2021, Garret Market remained fully open while conducting inventory, but in 2022 Garrett closed during inventory. In 2023, G
    14·2 answers
  • Kate is a busy student. She likes to run to stay healthy and fit. She doesn't shop all the brands because she knows what shoe is
    5·1 answer
  • Lamar has 20 Oranges and 15 Apples
    6·1 answer
  • In the National Business Ethics Survey, ________ of the employees identified pressure to meet unrealistic objectives as the most
    12·1 answer
  • When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are
    11·1 answer
  • Imagine you are a consultant who has been asked to summarize the strengths and weaknesses of Directavia, a nation with a pure co
    14·1 answer
  • The most immediate impact of rising inflation is
    13·2 answers
  • Which of the following statements about investing is
    9·1 answer
  • Which of the following is an example of investment in capital?
    13·1 answer
  • ErgoWorld Inc. manufactures office furniture. The company is considering adopting a modular production system. A modular system
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!