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Semenov [28]
3 years ago
9

Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three years. The

investment costs $45,000 and has an estimated $6,000 salvage value. Assume Peng requires a 15% return on its investments. Compute the net present value of this investment. Assume the company uses straight-line depreciation. (PV of $1, FV of $1, PVA of $1, and FVA
Business
1 answer:
Bogdan [553]3 years ago
8 0

Answer:

NPV =$(36,602.61)

Explanation:

<em>The Net present value (NPV) is the difference between the Present value (PV) of cash inflows and the PV of cash outflows. A positive NPV implies a good and profitable investment project and a negative figure implies the opposite.  </em>

NPV = PV of cash inflows - PV of cash outflows  

<em>PV of cash inflow= A × (1- (1+r)^(-n)/r</em>

A- net cash inflow  1,950, r- discount rate- 15%, n- number of years- 3

PV of cash inflows =  1,950 × ((1- (1.15)^(-3))/0.15

                               = 4,452.28

<em>PV of scrap value = F ×(1+r)^(-n)</em>

F- Scrap value - 6000, r- discount rate = 15% n- number of years- 3

PV of scrap value = 6,000 ×(1.15)^(-3)=3,945.09

NPV = 4,452.28  + 3,945.097 - 45,000

      = (36,602.61)

NPV =$(36,602.61)

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The following data relate to the operations of Slick Software, Inc., during 2018. Continuing operations:
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A. $5.70

B. $7,625,000

C. $2.25

D. UNFAVORABLE amount of $4.25

Explanation:

a.Preparation of a condensed income statement for 2018,

SLICK SOFTWARE, INC.Condensed Income StatementFor the Year Ended December 31, 2018

Net sales $19,850,000

Costs and expenses $16,900,000

Income from continuing operations$2,950,000

Discontinued operations:

Operating income $140,000

Loss on disposal (net of income tax benefit)(550,000)

Income before extraordinary item $2,540,000 Extraordinary loss (net of income tax benefit)(900,000)

(550,000+350,000)

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Extraordinary loss (4.50)

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b.Preparation of a statement of retained earnings for the year ended December 31, 2018

SLICK SOFTWARE, INC.Statement of Retained Earnings For the Year Ended December 31, 2018

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Net income1,640,000

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Number of common shares outstanding 200,000

Cash dividend per common share $2.25

($450,000 ÷ 200,000 shares)

D. The amount of $8.00 earnings per share figure in 2019 will have unfavorable figure when compared with the year 2018 reason been that

the year 2019 has one Earnings Per Share amount which is why we should compared it to the earnings per share from continuing operations in year 2018, which gave us the amount of $12.25 per share[($2,950,000 - $500,000) ÷200,000] which inturn makes Slick Software, Inc.’s earnings per share from continuing operations to reduce to the amount of $4.25 per share ($12.25-$8.00) from the year 2018 to 2019

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