1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Anna35 [415]
3 years ago
7

Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a u

seful life of 8 years with no salvage value. Depreciation is computed by the straight line method. During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $65,000 respectively. Yappy Company requires a 10% return on all new investments.
Compute each of the following:
1. Payback period
2. Net present value
3. Profitability index
4. internal rate of return
5. Accounting rate of return
Indicate whether the investment should be accepted or rejected.
Business
1 answer:
Eddi Din [679]3 years ago
7 0

Answer:

a. 4.92 years

b. NPV = $26,770.20

c. 1.0837

d. IRR = 12.26%

e. 15.6%

the project should be accepted

Explanation:

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period =  Amount invested / cash flow = $320,000  / $65,000 = 4.92 years

Net present value is the present value of after tax cash flows from an investment less the amount invested.    

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested

NPV and IRR can be calculated using a financial calculator

Cash flow in year 0 = $-320,000

Cash flow each year from year 1 to 8 = $65,000

I = 10%

NPV = $26,770.20

IRR = 12.26%

profitability index = 1 + (NPV / Initial investment) = 1 + ($26,770.20 / $320,000 ) = 1.0837

The project should be accepted because the NPV and profitability index are positive. the IRR is greater than the discount rate. this means that the project is profitable. Accounting rate of return = Average net income / Average book value

Average book value = (cost of equipment - salvage value) / 2 = $320,000 / 2 = $160,000

$25,000 / $160,000 = 0.156 = 15.6%

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.  

You might be interested in
All of the following are true regarding implied agreements EXCEPT which one?
Brrunno [24]

Answer:

An implied agreement is based on a formal agreement.

Explanation:

A contract can be defined as an agreement between two or more parties (group of people) which gives rise to a mutual legal obligation or enforceable by law.

There are different types of contract in business and these includes: fixed-price contract, cost-plus contract, bilateral contract, implied contract, unilateral contract, adhesion contract, unconscionable contract, option contract, express contract, executory contract, etc.

Mutual assent is a legal term which represents an agreement by both parties to a contract. When two parties to a contract both have an understanding of the parameters, terms and conditions surrounding a contract, it ultimately implies that they are in agreement; this is generally referred to as mutual assent.

Simply stated, mutual assent connotes agreement, acceptance and consent to a contract by both parties.

An implied contract can be defined as an informal contract that exists based on an assumption or understanding between two or more parties, rather than on terms that are formally and specifically defined.

This ultimately implies that, an implied agreement is not based on a formal agreement but on assumptions or understanding between the parties involved.

4 0
3 years ago
The sticky-price theory helps explain what feature of the aggregate demand and aggregate supply model?
zhuklara [117]

Answer:

The stick price theory helps to explain the upward sloping shape of the aggregate supply curve.

Explanation:

The price tends to be sticky for a number of reasons.  

  1. Firms will need to incur menu costs if they constantly change prices
  2. Frequent change in prices may annoy the customers
  3. The wage rates remain the same even after change in price because the  wages are based on contracts

The short-run aggregate supply curve is upward sloping because of the stickiness of price, there is a positive and direct relationship between output and price. Due to the high expected price level in the short run, the firms will expect the input prices to rise along with an increase in the product price.  

To counter the increase in inputs price, the product price is kept high. The higher price provides motivation to produce more. That's why the short-run aggregate supply curve is upward sloping.

7 0
3 years ago
John Daniel opened a medical practice in Sacramento, California, and had the following transactions during the month of January.
spayn [35]

Answer:

Explanation:

The journal entries are shown below:

1. Cash A/c Dr $34,000

       To Common stock A/c $34,000

(Being the cash is received in exchange of common stock)

2. Medical supplied A/c Dr $17,000

          To Account payable A/c $17,000

(Being the medical supplies are purchased on account)

3. Cash A/c Dr $1,600

        To Service Revenue A/c $1,600

(Being the cash is received for service performed)

4. Office Rent Expenses A/c Dr $3,000

           To Cash A/c $3,000

(Being the office rent expense is paid for cash)

5. Accounts Receivable A/c Dr $7,000

            To Service revenue A/c $7,000

(Being the service revenue is recorded)

4 0
3 years ago
The rule of supply and demand says that
LuckyWell [14K]

Answer:

C ) As demand increases,price increases

4 0
3 years ago
Read 2 more answers
Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to s
slega [8]

Answer:

c. The response of buyers and sellers to a change in the price of bananas is strong.

Explanation:

At more elastic the demand (buyers) and supply ( sellers) curve are, greater the effect on the equilibrium quantity. As the taxes is negative for both parties:

increase sales price for the buyer (demand) the demand curve will shift down at higher elasticity

If the supply is inelastic the supplier will take the hit of the tax and but if it is elastic as well both will "fight" to move the effect to the other making the quantity decrease heavily

3 0
3 years ago
Other questions:
  • If the supply curve and the demand curve for lettuce both shift to the left by an equal amount, what can we say about the result
    13·1 answer
  • How do job agencies help you find a job and how does it work?
    10·1 answer
  • An investor is considering buying a restaurant that has been in operation for a number of years. The restaurant has a highly reg
    6·1 answer
  • Yan Yan Corp. has a $10,000 par value bond outstanding with a coupon rate of 4.8 percent paid semiannually and 22 years to matur
    8·1 answer
  • During a year, Mark’s monthly sales compensation ranged between $15,500 and $20,900 per month and units sold ranged between 1,10
    14·1 answer
  • Yum Foods recently merged with Clean Plates. Which of the following activities should HR perform after the integration process?
    8·1 answer
  • On October 31, the stockholders’ equity section of Heins Company consists of common stock $370,000 and retained earnings $904,
    15·1 answer
  • Vijay Inc. purchased a three-acre tract of land for a building site for $310,000. On the land was a building with an appraised v
    11·1 answer
  • 1 points Time Remaining 1 hour 14 minutes 35 seconds01:14:35 eBookPrintReferencesCheck my workCheck My Work button is now enable
    9·1 answer
  • an initial public offering (ipo) represents the first time a corporation's stock is offered and sold to persons outside of the c
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!