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2 years ago

A company is considering an investment project that would cost $8 million today and yield a payoff of $10 million in 5 years.

Business

1 answer:

Semenov [28]2 years ago

7 0

Answer:

Kindly see explanation

Explanation:

Given the following:

Initial investment = $8,000,000

Future value (FV) = $10,000,000

PERIOD (t) = 5 Years

To know if the form should undertake the project, the present value(PV) at each interest rate should be calculated ;

A.) Interest rate (r) = 7% = 0.07

PV = FV / (1 + r)^t

PV = 10,000,000 / (1 + 0.07)^5

PV = 10,000,000 / 1.07^5

PV = 10,000,000 / 1.4025517307

PV = $7,129,861.79483668

Should not be undertaken, PV is less than initial investment.

B.) Interest rate (r) = 6% = 0.06

PV = FV / (1 + r)^t

PV = 10,000,000 / (1 + 0.06)^5

PV = 10,000,000 / 1.06^5

PV = 10,000,000 / 1.3382255776

PV = $7,472,581.72866057

Should not be undertaken, PV is less than initial investment.

C.) Interest rate (r) = 5% = 0.05

PV = FV / (1 + r)^t

PV = 10,000,000 / (1 + 0.05)^5

PV = 10,000,000 / 1.05^5

PV = 10,000,000 / 1.2762815625

PV = $7,835,261.66468459

Should not be undertaken, PV is less than initial investment

D.)Interest rate (r) = 4% = 0.04

PV = FV / (1 + r)^t

PV = 10,000,000 / (1 + 0.04)^5

PV = 10,000,000 / 1.04^5

PV = 10,000,000 / 1.2166529024

PV = $8,219,271.06759351

Should be undertaken, PV is greater than initial investment

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<u>Solution and Explanation:</u>

Calculation of Minimum lease annual payments from (MLP)

Year MLP from lessor Present value Present valur of

point of view factor 8% cash flows

1 $4,703 $1 /(1.08)=0925$ $4,350.28

2 $4,703 $1 /(1.08)^{\wedge} 2=0.857$ $4,030.47

3 $4,703 $1 /(1.08)^{\wedge} 3=0.793$ $3,729.48

4 $4,703 $1 /(1.08)^{\wedge} 4=0.735$ $3,456.71

5 $4,703 $1 /(1.08)^{\wedge} 5=0.680$ $3,198.04

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lease Payments $23,515 $ 18,764.97

Add

Unguaranteed

residual value(ugrv) 4000 $1 /(1.08)^{\wedge 5}=0.680$ $2,720.00

Asset to be recorded

in the books of lessor

(sum of mlp +ugrv) $27,515 $ 21,484.97

Here

Gross Investment=$27515

Lease receivable recorded in in the books of lessor(Phelps)(Mimum lease payments + Unguaranteed residual )value = $21484 $21,484

Walsh (lessee) shoiuld be recorded the amount of present value of minimum lease payments + Guaranteed Residual value=$18764.97 as asset and liabilty

b) In the books of phelps (lessor)

2017.01.01 Lease Recievble from walsh ….Dr $21,484

to Asset $21,484

(Being Lease receivable recorded )

In the books of Walsh (lessee)

2017.01.01 Asset ac ……………Dr $18,764

to Lease Liabilty(Lessor) $18,764

(Being the asset and liabilty recorded )

2017.12.31 Depreciation ……Dr 3752

to Asset 3752

(Beint Depreciation recorded charged during the year recorded 18764/5 provided for 5 years)

Here annual payment started from the at the beginning of year i.e annual lease payments start from 01.01.2018.

c) If expected residual value of $4000 is guaranteed by walsh no changes will be made in classification of lease and there is no chages in asset recorded in Lessor books. But changes will be made in the books of lessee as present value of guaranteed residual value should be added to asset I.e $18764+Present vlue of $4000 $18764+2720=21484

d) If expected residual value of $3000 is guaranteed by walsh no changes will be made in classification of lease and there is no chages in asset recorded in Lessor books But changes will be made in the books of lessee as present value of guaranteed residual value should be added to asset I.e $18764+Present vlue of $3000 $18764+$2040=$20804

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The assumption that is necessary for a linear programming model to be appropriate and that ensures that the value of the objecti

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Answer:

A. Additivity

Explanation:

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The following transactions relate to the General Fund of the City of Buffalo Falls for the year ended December 31, 2020: Beginni

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Answer:

City of Buffalo Falls

a. Journal Entries:

Beginning balances:

Jan.1, 2020 :

Description Debit Credit

Cash $93,000

Taxes Receivable $189,500

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Fund Balance $230,250

To record opening balances of the General Fund.

Transactions during the year:

Description Debit Credit

Taxes Receivable $1,230,000

Estimated Revenue $1,230,000

To record the estimated revenue for the year.

General Government $1,227,400

Accounts Payable $1,227,400

To record the estimated appropriations for the year.

Property taxes receivable $915,000

Other revenue receivable $315,000

Estimated revenue $1,230,000

Cash Account $1,182,500

Property taxes receivable $885,000

Other revenue receivable $297,500

To record the cash receipts.

Contracts $95,250

Accounts Payable $95,250

To record contracts for services.

Debit General Government $963,500

Credit Accounts Payable $963,500

To record the other expenditures.

Debit Accounts Payable $1,092,500

Credit Cash Account $1,092,500

To record payment on account.

b. Statement of Revenues, Expenditures, and Changes in Fund Balance for the General Fund:

Estimated Revenue $1,230,000

less Expenditure:

Contracts 95,250

Other expenditures 963,500

Change in fund $171,250

Fund balance b/f 230,250

Fund balance c/f $401,500

c. Balance Sheet for the General Fund:

Cash $183,000

Taxes Receivable 237,000

Total assets $420,000

Accounts Payable $18,750

Fund balance 401,500

Total liabilities + Fund $420,250

Explanation:

a) Cash Account:

Beginning balance $93,000

Property taxes 885,000

Other revenue 297,500

less Accounts payable 1,092,500

Ending balance $183,000

b) Taxes Receivable

Beginning balance $189,500

Estimated Revenue 1,230,000

less Receipts:

Property taxes 885,000

Other revenue 297,500

Ending balance $237,000

c) Accounts Payable

Beginning balance $52,500

Other expenditure 963,500

Contracts 95,250

Less payments 1,092,500

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Answer:

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3 years ago