Accounting help

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Week Five Assignment

Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.

1. Basic present value calculations

Calculate the present value of the following cash flows, rounding to the nearest dollar:

a. A single cash inflow of $12,000 in five years, discounted at an 11% rate of return.

b. An annual receipt of $16,000 over the next 12 years, discounted at an 11% rate of return.

c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 12% rate of return.

d. An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has an 11% rate of return.

2. Cash flow calculations and net present value

On January 2, 20X7, Brian Rein invested $10,000 in the stock market and purchased 500 shares of Heartland Development, Inc. Heartland paid cash dividends of $2.70 per share in 20X7 and 20X8; the dividend was raised to $3.30 per share in 20X9. On December 31, 20X9, Rein sold his holdings and generated proceeds of $13,100. Rein uses the net-present- value method and desires a 16% return on investments.

a. Prepare a chronological list of the investment’s cash flows. Note: Rein is entitled to the 20X9 dividend.

b. Compute the investment’s net present value, rounding calculations to the nearest dollar.

c. Given the results of part (b), should Rein have acquired the Heartland stock? Briefly explain.

3. Net present value

The City of Brighton is studying a 550-acre site on Route 401 for a new landfill. The startup cost has been calculated as follows:

Purchase cost: $400 per acre

Site preparation: $180,000

The site can be used for 20 years before it reaches capacity. Brighton, which shares a facility in Bath Township with other municipalities, estimates that the new location will save $40,000 in annual operating costs.

a. Should the landfill be acquired if Brighton desires an 8% return on its investment? Use the net-present-value method to determine your answer.

4. Net-present-value

ABC Entertainment is considering the acquisition of a sight-seeing boat for summer tours along the Mississippi River. The following information is available:

Cost of boat	$550,000
Service life	10 summer seasons
Disposal value at the end of 10 seasons	$100,000
Capacity per trip	260 passengers
Fixed operating costs per season (including straight-line depreciation)	$160,000
Variable operating costs per trip	$1,000
Ticket price	$6 per passenger

All operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of the country, management anticipates that each trip will be sold out and that 130,000 passengers will be carried each season. Ignore income taxes.

Instructions:

By using the net-present-value method, determine whether ABC Entertainment should acquire the boat. Assume a 14% desired return on all investments,- round calculations to the nearest dollar.

5. Equipment replacement decision

Richardson Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment is expected to provide six more years of service if $8,500 of major repairs are performed in two years. Annual cash operating costs total $28,000. Richardson can sell the equipment now for $37,000; the estimated residual value in six years is $5,000.

New equipment is available that will reduce annual cash operating costs to $21,000. The equipment costs $105,000, has a service life of six years, and has an estimated residual value of $13,000. Company sales will total $430,000 per year with either the existing or the new equipment. Richardson has a minimum desired return of 12% and depreciates all equipment by the straight-line method.

Instructions:

a. By using the net-present-value method, determine whether Richardson should keep its present equipment or acquire the new equipment. Round all calculations to the nearest dollar, and ignore income taxes.

b. Richardson’s management feels that the time value of money should be considered in all long-term decisions. Briefly discuss the rationale that underlies management’s belief.

Please use the following Present and Future Value Tables attached. as a resource to solving the assigned problems:

Future Value of $1

Present Value of $1

Present Value of Ordinary Annuity

AppendixA

Future value interest factor of $1 per period at i% for n periods, FVIF(i,n).

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RATE PER PERIOD

1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

1 1.010 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 1.100

2 1.020 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.188 1.210

3 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.331

4 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1.464

5 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611

6 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 1.772

7 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.949

8 1.083 1.172 1.267 1.369 1.477 1.594 1.718 1.851 1.993 2.144

9 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358

10 1.105 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 2.594

11 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853

12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 3.138

13 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452

14 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.797

15 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177

16 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595

17 1.184 1.400 1.653 1.948 2.292 2.693 3.159 3.700 4.328 5.054

18 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560

19 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116

20 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 6.727

25 1.282 1.641 2.094 2.666 3.386 4.292 5.427 6.848 8.623 10.835

30 1.348 1.811 2.427 3.243 4.322 5.743 7.612 10.063 13.268 17.449

35 1.417 2.000 2.814 3.946 5.516 7.686 10.677 14.785 20.414 28.102

40 1.489 2.208 3.262 4.801 7.040 10.286 14.974 21.725 31.409 45.259

50 1.645 2.692 4.384 7.107 11.467 18.420 29.457 46.902 74.358 117.391

Future value interest factor of $1 per period at i% for n periods, FVIF(i,n).
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RATE PER PERIOD

11% 12% 13% 14% 15% 16% 17% 18% 19% 20%

1 1.110 1.120 1.130 1.140 1.150 1.160 1.170 1.180 1.190 1.200

2 1.232 1.254 1.277 1.300 1.323 1.346 1.369 1.392 1.416 1.440

3 1.368 1.405 1.443 1.482 1.521 1.561 1.602 1.643 1.685 1.728

4 1.518 1.574 1.630 1.689 1.749 1.811 1.874 1.939 2.005 2.074

5 1.685 1.762 1.842 1.925 2.011 2.100 2.192 2.288 2.386 2.488

6 1.870 1.974 2.082 2.195 2.313 2.436 2.565 2.700 2.840 2.986

7 2.076 2.211 2.353 2.502 2.660 2.826 3.001 3.185 3.379 3.583

8 2.305 2.476 2.658 2.853 3.059 3.278 3.511 3.759 4.021 4.300

9 2.558 2.773 3.004 3.252 3.518 3.803 4.108 4.435 4.785 5.160

10 2.839 3.106 3.395 3.707 4.046 4.411 4.807 5.234 5.695 6.192

11 3.152 3.479 3.836 4.226 4.652 5.117 5.624 6.176 6.777 7.430

12 3.498 3.896 4.335 4.818 5.350 5.936 6.580 7.288 8.064 8.916

13 3.883 4.363 4.898 5.492 6.153 6.886 7.699 8.599 9.596 10.699

14 4.310 4.887 5.535 6.261 7.076 7.988 9.007 10.147 11.420 12.839

15 4.785 5.474 6.254 7.138 8.137 9.266 10.539 11.974 13.590 15.407

16 5.311 6.130 7.067 8.137 9.358 10.748 12.330 14.129 16.172 18.488

17 5.895 6.866 7.986 9.276 10.761 12.468 14.426 16.672 19.244 22.186

18 6.544 7.690 9.024 10.575 12.375 14.463 16.879 19.673 22.901 26.623

19 7.263 8.613 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948

20 8.062 9.646 11.523 13.743 16.367 19.461 23.106 27.393 32.429 38.338

25 13.585 17.000 21.231 26.462 32.919 40.874 50.658 62.669 77.388 95.396

30 22.892 29.960 39.116 50.950 66.212 85.850 111.065 143.371 184.675 237.376

35 38.575 52.800 72.069 98.100 133.176 180.314 243.503 327.997 440.701 590.668

40 65.001 93.051 132.782 188.884 267.864 378.721 533.869 750.378 1,051.668 1,469.772

50 184.565 289.002 450.736 700.233 1,083.657 1,670.704 2,566.215 3,927.357 5,988.914 9,100.438

Appendix C

Present value interest factor of $1 per period at i% for n periods, PVIF(i,n).

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RATE PER PERIOD

1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%

1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833

2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694

3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579

4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482

5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402

6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335

7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279

8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233

9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194

10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162

11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135

12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112

13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093

14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078

15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065

16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054

17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045

18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038

19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031

20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026

25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010

30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012 0.009 0.007 0.005 0.004

35 0.706 0.500 0.355 0.253 0.181 0.130 0.094 0.068 0.049 0.036 0.026 0.019 0.014 0.010 0.008 0.006 0.004 0.003 0.002 0.002

40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001

50 0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.009 0.005 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000

AppendixD

Present value interest factor of an (ordinary) annuity of $1 per period at i% for n periods, PVIFA(i,n).

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Rate per period

1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%

1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833

2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528

3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106

4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589

5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991

6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326

7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605

8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837

9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031

10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192

11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327

12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439

13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533

14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611

15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675

16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730

17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775

18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812

19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843

20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870

25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948

30 25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979

35 29.409 24.999 21.487 18.665 16.374 14.498 12.948 11.655 10.567 9.644 8.855 8.176 7.586 7.070 6.617 6.215 5.858 5.539 5.251 4.992

40 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997

50 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 9.042 8.304 7.675 7.133 6.661 6.246 5.880 5.554 5.262 4.999