During 2018, P Company discovered that the ending inventories reported on its financial statements were incorrect by the followi
1 answer:
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Answer: 18%
Explanation:
The payments that your friend will make are an annuity as they are constant. This means that the loan amount of $15,000 is the present value of the annuity.
To find the rate of return, use the factor tables.
Present value of annuity = Annuity * Present value interest factor of annuity, 14 years, ?%
15,000 = 3,000 * Present value interest factor of annuity, 14 years, ?%
Present value interest factor of annuity, 14 years, ?% = 15,000 / 3,000
Present value interest factor of annuity, 14 years, ?% = 5.0
Go to the present value of annuity factor table and find out what interest rate intersects with 14 periods such that the factor is 5.0.
That rate is 18%.
Rate of return is therefore 18%.
Answer:
The Firm should not Buy and Install the press as it delivers a negative NPV of -$24,924 at 11% discount rate over its 4 year operations
Explanation:
The General rule is to appraise the investment based on various appraisal techniques.
A technique that should be considered must have special focus on the time value of money, the required rate of returns expected by the firm and other Cashflow considerations.
The Net Present Value (NPV) approach will be the best method to proceed with.
The NPV approach typically falls under the following decision tree:
a. If NPV is negative (Reject the proposal)
b. If NPV is positive (Accept if it's a singular project, Accept the highest positive NPV if it's for mutually exclusive Projects)
c. If Zero (this is the breakeven line at which the Project covers all its cost but does not return a profit.) Also referred to as the IRR
Kindly refer to the attached for detailed workings
