Stan Sweeney turned 20 years old today. His grandfather established a trust fund that will pay Mr. Sweeney $80,000 on his next birthday

ACC202 Week 5 E16-1 E16-2 E16-3 E16-5 P16-16 P16-17 P16-18

Exercise 16-1 : Identifying cash inflows and outflows Required Indicate which of the following items will result in cash inflows and which will result in cash outflows. The first one is show as an example.

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Exercise 16-2 : Determining the present value of a lump-sum future cash receipt Stan Sweeney turned 20 years old today. His grandfather established a trust fund that will pay Mr. Sweeney $80,000 on his next birthday. However, Stan needs money today to start his college education. His father is willing to help and has agreed to give Stan the present value of the future cash inflow, assuming a 10 percent rate of return.   Cont… Exercise 16-3 : Determining the present value of a lump-sum future cash receipt Marsha Bittner expects to receive a $600,000 cash benefit when she retires five years from today. Ms. Bittner’s employer has offered an early retirement incentive by agreeing to pay her $360,000 today if she agrees to retire immediately. Ms. Bittner desires to earn a rate of return of 12 percent.   Cont… Exercise 16-5 : Determining net present value Metro Shuttle Inc. is considering investing in two new vans that are expected to generate combined cash inflows of $28,000 per year. The vans’ combined purchase price is $91,000. The expected life and salvage value of each are four years and $21,000, respectively. Metro Shuttle has an average cost of capital of 14 percent.   Cont… Problem 16-16 : Using present value techniques to evaluate alternative investment opportunities. Fast Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Fast recently acquired approximately $6 million of cash capital from its owners, and its president. Don Keenon, is trying to identify the most profitable way to invest these funds.   Cont… Problem 16-17: Using the payback period and unadjusted rate of return to evaluate alternative investment opportunities. Louis Gallo owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involved purchasing a machine that would enable Mr. Gallo to offer frozen yogurt to customers. The machine would cost $8,100 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $5.940 and $900, respectively.   Cont… Problem 16-18: Using net present value and internal rate of return to evaluate investment opportunities. Veronica Tanner, the present of Tanner Enterprises, is considering two investment opportunities. Because of limited resources, she will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $100,000 and for Project B are $40,000. The annual expected cash inflows are $31,487 for Project A and $13,169 for Project B. Both investments are expected to provide cash flow benefits for the next four years. Tanner Enterprise’s cost of capital is 8 percent.

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