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
crimeas [40]
3 years ago
5

A company has the opportunity to take over a redevelopment project in an industrial area of a city. No immediate investment is r

equired, but it must raze the existing buildings over a four-year period and, at the end of the fourth year, invest $2,400,000 for new construction. It will collect all revenues and pay all costs for a period of 10 years, at which time the entire project, and properties thereon, will revert to the city. The net cash flows are estimated to be as follows:
Year End Net Cash Flow

1 $500,000
2 $300,000
3 $100,000
4 $2,400,000
5 $150,000
6 $200,000
7 $250,000
8 $300,000
9 $350,000
10 $400,000

Tabulate the PW versus the interest rate and determine whether multiple IRRs exist. If so, use the ERR method when e 8% per year to determine a rate of return. A new municipal refuse-collection truck can be purchased for $84,000. Its expected useful life is six years, at which time its market value will be zero. Annual receipts less expenses will be approximately $18,000 per year over the six-year study period. Use the PW method and a MARR of 18% to determine whether this is a good investment.
Business
1 answer:
Ganezh [65]3 years ago
5 0

Answer:

1-a. The are multiple IRRs stated as follows:

The first IRR value = 4.09%

Second IRR value = 31.82%

1-b. Rate of return = 7.58%

2. This is NOT a good investment because the NPV is negative.

Explanation:

Note: The estimated Net Cash Flow for the 4th year in the data is erroneously stated in the question as a positive value instead as a negative value since it is a cost.

The estimated net cash flows correctly before answering the question as follows:

Year End             Net Cash Flow

1                             $500,000

2                            $300,000

3                            $100,000

4                          –$2,400,000

5                            $150,000

6                            $200,000

7                            $250,000

8                            $300,000

9                            $350,000

10                           $400,000

The explanation of the answers is now given as follows:

1-a. Tabulate the PW versus the interest rate and determine whether multiple IRRs exist.

Note: See Part 1-a of the attached excel file for the tabulation of the PW versus the interest rate.

From Part 1-a of the attached excel file, it can be observed that multiple IRRs exist. This is because there two IRRs stated as follows:

The first IRR value = 4.09%

Second IRR value = 31.82%

1-b. If so, use the ERR method when e 8% per year to determine a rate of return.

Note: See Part 1-a of the attached excel file for the calculation of total future value of income when e = 8% per year.

In the attached excel file, note that year 4 has a cost not income. Therefore,

From attached excel, we have:

Total Future Value of Income = $3,661,508.81

In the attached excel file, note that year 4 has a cost (not income) of $2,400,000. Therefore, it future value is not calculated. However, the present of the cost can be calculated as follows:

Present value of cost in year 4 = $2,400,000 / (100% + e)^4 = $2,400,000 / (100% + 8%)^4 = $1,764,071.65

The rate of return can now be calculated as follows:

Rate of return = ((Total Future Value of Income / Present value of cost in year 4)^(1/Number of period)) - 1 = (($3,661,508.81 / $1,764,071.65)^(1/10)) - 1 = 0.0758, or 7.58%

2. Use the PW method and a MARR of 18% to determine whether this is a good investment.

Note: See Part 2 of the attached excel file for the calculation of net present value (NPV).

From part 2 of the attached excel file, we have:

Net present value = –$21,043.15

Since the net present value is negative, this implies that this is NOT a good investment.

Download xlsx
You might be interested in
A court order to compel or restrain a particular action is called
expeople1 [14]
I am pretty sure that correct definition looks like this: A court order to compel or restrain a particular action is called writ of injunction. For example, you have a lawn, and someone deliberately spoils it every day. You can apply to the court for the injunction against this person to deny the access to your lawn for this person.
4 0
3 years ago
Read 2 more answers
3 uses of money supply
zalisa [80]

Answer:

Money serves as a medium of exchange, as a store of value, and as a unit of account.

7 0
3 years ago
A dry cleaner uses exponential smoothing to forecast equipment usage at its main plant. August usage was forecasted to be 50 per
katovenus [111]

Answer:

Explanation:

Forecast usage = 50 %

Actual Usage = 52%

smoothing constant = 0.10

⇒ 50 + 0.10 (52 - 50)

⇒ 50 + 0.10 (2)

⇒ 50 + 0.2 = 50.20

8 0
3 years ago
The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. If Burkett Corporation achi
nata0808 [166]

Answer:

Margin Of Safety= $275,862

Explanation:

We can calculate the margin of safety easily by the formula given below

Formula: Margin of safety = Budgeted sales - Breakeven sales

As breakeven sales are not given in the data Firstly we need to find out break even sales in order to calculate margin of safety

Breakeven sales=  \frac{Total fixed cost}{Contribution margin ratio}

As you can see in the data fixed cost s given but contribution margin ratio is not

Contribution margin(Sales revenue - All variable cost)= $1,000,000 - ($270,000 + $240,000 + $150,000 + $50,000) = $1,000,000 - $710,000 = $290,000

Sales price per unit = Total sales/Number of units sold

Sales price per unit=  $1,000,000/50,000 = $20

Budgeted contribution margin= $290,000/50,000 = $5.80

Contribution margin ratio = Budgeted contribution margin per unit/Sales price per unit

Contribution margin ratio = $5.80/$20 = 29%

Lets put values in breakeven formula to find breakeven sales

Breakeven sales=  \frac{Total fixed cost}{Contribution margin ratio}

Breakeven sales=\frac{210000}{0.29}

Breakeven sales= $724,138

Now we have both budgeted sales and breakeven sales, we can  easily calculate e of safety

Margin of safety = $1,000,000- $724,138

Margin of safety = $275,862

7 0
3 years ago
Suppose the National Bureau of Economic Research (NBER) comes out with a report suggesting that the economy will soon dip into r
egoroff_w [7]

Levels of cyclical unemployment will rise.

Unanswered levels of frictional unemployment may rise as people looking for jobs will find it harder to get new jobs.

Unanswered levels of structural unemployment are likely to rise as businesses look for specific types of workers.

Answer: Options A, B and G.

<u>Explanation:</u>

In Economics, a recession is a business cycle constriction when there is a general decrease in monetary action. Downturns by and large happen when there is a far reaching drop in spending.

A recession happens when there are at least two back to back quarters of negative monetary development, which means GDP development contracts during a downturn. As organizations battle with less money and income, they first attempt to lessen their expenses by bringing compensation or stopping down to procure new specialists, which can stop business development.

6 0
3 years ago
Other questions:
  • Showcase Co., a furniture wholesaler, sells merchandise to Balboa Co. on account, $252,510, terms n/30. The cost of the goods so
    9·1 answer
  • When interests rates are high it costs less money to borrow money true or false?
    7·2 answers
  • Which of the following determines​ "when specific products will be​ made, when specific customer orders will be filled and what​
    15·1 answer
  • The law creates the foundation for ethical behavior.<br><br><br> True<br><br><br> False
    7·1 answer
  • A research company has conducted an evaluation of European online retailers by asking consumers how well the websites helped the
    14·1 answer
  • Walter is the manager of sales operations at Woode Industries. He has to define the sales goals for the forthcoming financial ye
    14·1 answer
  • On January 1, 2018, equity account balances are as follows: Preferred Stock $ 500,000 Common Stock 1,000,000 Paid-In Capital in
    11·1 answer
  • Sally has invested $10,000 now and wants to earn a real interest rate of 10% per year. Assume that the inflation rate is 7% per
    15·1 answer
  • Who are the top three trading partners with the US?
    6·2 answers
  • A company's current assets are $26,420, its quick assets are $15,090 and its current liabilities are $12,520. Its acid-test rati
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!