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Sophie [7]
3 years ago
6

Newman Labs is considering buying equipment, which would enable the company to obtain a five-year research contract. The special

ized equipment costs $650,000 and will have no salvage value when the five-year contract period is over. The estimated annual operating results of the project are as follows:
revenue 750,000expenses (including straight line depreciation) 650,000increase in net income 100,000All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.Refer to the information above. Compute the net present value of this investment, using a discount rate of 12%. (An annuity table shows that the present value of $1 received annually for five years, discounted at 12%, is 3.605.)a. $468,650. b. $179,150. c. $289,500. d. $829,150.
Business
2 answers:
gizmo_the_mogwai [7]3 years ago
4 0

Answer:

Option B. $179,150 NPV  

Explanation:

In this case, there is no taxes which means we will have to ignore the tax implications.

Now, as we know that NPV can be calculated as under:

NPV = Annual Net Cash flow (Step 1) * Annuity Factor - Initial Investment

Here

Initial investment is $650,000

Annuity Factor at 12% is 3.605

Annual Net Cash Flow is $230,000 (Step 1)

So by putting values we have:

NPV = $230,000 * 3.605 - $650,000

NPV = $829,150 - $650,000 = $179,150 NPV

<u>Step 1. Annual Net Cash flow</u>

Here Annual Net cash flow can be calculated as under:

Annual Net Cash Flow = Cash Inflow - Cash Outflow (Step 2)

Cash inflow $750,000

Cash Outflow is $520,000

Which means

Annual Net Cash Flow = $750,000 - $520,000 = $230,000

<u>Step 2. Cash Outflow</u>

Cash outflow is not given but we can find it using the expense $650,000 and eliminating the non cash impact of the expenses included (Depreciation). So we will have to find the depreciation using the straight line basis and deduct it from the aggregated expense for the year to find cash outflow for the year.

Depreciation for the year = (Cost - Salvage Value) / Useful

Depreciation for the year = $650,000 / 5 = $130,000

So the yearly cash outflow is:

Annual Cash Outflow = $650,000 - 130,000 = $520,000

DanielleElmas [232]3 years ago
3 0

Answer:

B

Explanation:

Net present value is a tool used to analyze how profitable a project by deducting the present value the difference between cash inflow and cash outflow over a period of time.

The formula is (cash flow)/(1+r)^i

Revenue - $750,000

Expenses - $650,000

Increase in net income - 100,000

Annual depreciation charge - 650000/5 =$130,000

Discount rate - 12%=3.605

Present cash value =( $100,000+$130000) = $230,000

Please note that depreciation is added back as it is a non cash expenses

Present value of cash flow = annual cash flow * discount rate

=$230,000*3.605 =829,150

Net present value = 829150-650000= 179,150

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Answer:

B) Comprehensive Resource Management

Explanation:

Comprehensive resource management requires that you follow standard procedures in order to:

  • identify requirements
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It is very important that you plan how to properly plan how to effective allocate your resources.

4 0
3 years ago
In 2006 Hewlett-Packard repurchased shares of common stock worth $5,241 million and made dividend payments of $894 million. Othe
Hunter-Best [27]

Answer:

B) Decreased $138 million

Explanation:

To determine the effects of long term debt accounts on HP's total cash flow form financing we can use the following formula:

HP's cash flow from financing = new shares issued - shares repurchased - dividend payments + cash flows related to long term debt account + income from other financing activities  

-$6,077 = $0 -$5,241 -$894 + X + $196

-$6,077 = -$5,939 + X

-$138 = X

HP's long term debt accounts decreased by $138

8 0
3 years ago
Regular moderate exercise correlates with increased health, both physical and mental. Exercise friendly communities have LOWER r
nordsb [41]

Answer:

Obesity

Explanation:

7 0
2 years ago
"North Shore Community College reimburses faculty members $.535 cents per mile to go to a workshop. Professor Wales submitted he
Pachacha [2.7K]

Answer:

$347.81

Explanation:

Data provided in the question

Cents per mile to go to workshop = $0.535

And, the total miles traveled = 650.11 miles

So, the reimbursement expect would be

= Cents per mile to go to workshop × the total miles traveled

= $0.535 × 650.11 miles

=  $347.81

In order to find out the reimbursement, we simply multiplied the cents per mile with the total miles traveled

7 0
3 years ago
abc and xyz agree to maximize joint profits. However, while ABC produces the agreed upon amount, XYZ breaks the agreement and ea
Marat540 [252]

Answer:

The answer is "$ 140".

Explanation:

The company produces the quantity MR = MC and if there is no quantity MR = MC, the amount throughout the case MR is just greater and closest to MC to maximize profit.

Here MR = marginal income and marginal cost =MC

MR =\frac{Overall \ sales \ change}{Quantity\ shift}

In the above table, we could see that the amount MR = MC = 8 isn't available. Thus it produces the amount where the MR

is only larger but nearest to MC.

25 unit MR =\frac{TR \ change}{Quality \ change}

= [TR (when \ Q = 25) -TR \frac{(when \ Q = 20)]}{(25 - 20)}

= \frac{(450 - 400)}{5}= 10

(Minimum and superior to MC)

MR of 30 units=\frac{(480 – 450)}{(30–25)}=6, similarly MR of 30 units.

Consequently, 25 units were produced and 12.5 units were produced.

Currently, XYZ breaks the agreement and produces three more so thus maximum quantity produced on a market = 25 + 5 = 30 and through the above table they see which if quantity = 30, price = 16.

XYZ produces 12.5 + 5 = 17.5 output from 30 units.

Cost Total = TVC + TFC

Total TVC = Total Cost for Variable TFC = Maximum Cost of TFC = 0.

If MC is stable, TVC = MC \times Q = 8 \times q, where Q = exposed to the real produced and XYZ produces 17.5 in this case.

Total expenditure (TC+) is TVC = TFC = 8 \times 17.5.

Take control = TR - TC = TC = 16 \times 17.5 - 8 \times 17.5 = 150.

So the business XYZ is profiting = 140

7 0
3 years ago
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