If the capital stock is fixed and something happens to raise the marginal product of capital (MPK) for any given quantity of cap
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Answer:
First find the present value of the lease. Payments are constant and fixed so this is an annuity. As it is to be paid from the beginning, it is an Annuity due.
= Annuity * Present value interest factor of annuity due, 5 years, 7%.
= 37,400 * 4.3872
= $164,081
Date Account Details Debit Credit
Dec. 31, 2019 Lease Receivable $164,081
Cost of goods sold $104,800
Sales $164,081
Inventory $104,800
Date Account Details Debit Credit
Dec. 31, 2019 Cash $37,400
Lease Receivable $37,400
Answer:
Present value of Project X is $41990.6
Present value of Project Y is $34605.2
Explanation:
<u>PROJECT X </u>
PARTICULARS YEAR Cost/Value Present Value factor 15% Present Value
Initial Cost 0 45000 1 45000
Maintenance 1- 5 8000 3.352 26816
cost
Annual Depreciation 1-5 (8600) 3.352 (28827.2)
Salvage Value 5 (2000) 0.4971 <u> (994.2) </u>
Present value of cash outflows 41,990.6
<u>PROJECT Y</u>
<u>PARTICULARS </u> YEAR COST/VALUE Present value factor 15% PRESENT VALUE
Initial Cost 0 58000 1 58000
Maintenance 1- 5 4000 3.352 13409
cost
Annual Depreciation 1-5 (9200) 3.352 (30838.4)
Salvage Value 5 12000 0.4971 <u> (5965.2) </u>
Present Value of cash outflow 34605.2
Note: Figures in parenthesis denote cash inflow
Working Notes
Depreciation for project X = = $8600 p.a
Depreciation for project Y = = $9200 p.a
Decision: Since present value of cash outflows is lesser for Project Y, it should be taken up.