Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 Year 2 Year 3 Year 4 Cash Inflow $12,700 19,600 21, 200 21, 200 Cash Outflow $ 9,900 11,600 12,600 12,600 In addition to these cash flows, Aaron expects to pay $20,900 for the equipment. He also expects to pay $3,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,900 salvage value and a four year useful life. Aaron desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 Year 2 Year 3 Year 4 Cash Inflow $12,700 19,600 21, 200 21, 200 Cash Outflow $ 9,900 11,600 12,600 12,600 In addition to these cash flows, Aaron expects to pay $20,900 for the equipment. He also expects to pay $3,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,900 salvage value and a four year useful life. Aaron desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...

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Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 Year 2 Year 3 Year 4 Cash Inflow Cash Outflow $ 9,400 11, 200 $14,000 18,800 21,600 21,600 13,400 13,400 In addition to these cash flows, Aaron expects to pay $20,400 for the equipment. He also expects to pay $3,400 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,200 salvage value and a four-year useful life. Aaron desires to earn a rate of return of 8 percent. (PV of $1 and PVA of $1) (Use…
Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 Year 2 Year 3 Year 4 Cash Inflow Cash Outflow $40,000 $19,500 44,000 23,500 47,000 25,500 47,000 25,500 In addition to these cash flows, Aaron expects to pay $32,500 for the equipment. He also expects to pay $7,000 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $5,500 salvage value and a four-year useful life. Aaron desires to earn a rate of return of 7 percent. (PV of $1 and PVA of $1) Note: Use…
Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 a. Year 2 Year 3 Year 4 b. Cash Inflow Cash Outflow $ 9,900 11,300 13,500 13,500 In addition to these cash flows, Aaron expects to pay $21,400 for the equipment. He also expects to pay $3,000 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,200 salvage value and a four-year useful life. Aaron desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from…
Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation Year 1 Year 2 Year 3 Year 4 Cash Inflow $14,400 19,700 21,400 21,400 Cash Outflow $ 9,100 11,600 12,500 12,500 In addition to these cash flows, Aaron expects to pay $21,400 for the equipment. He also expects to pay $2,900 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,900 salvage value and a four-year useful life. Aaron desires to earn a rate of return of 10 percent. (PV of $1 and PVA of $1) (Use…
Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: In addition to these cash flows, Aaron expects to pay $20,100 for the equipment. He also expects to pay $3,500 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $1,800 salvage value and a four year useful life. Aaron desires to earn a rate of return of 8 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
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Harley worked for many years to save enough money to start his own residential landscape design business. The net cash flows shown are those he recorded for the first 6 years as his own boss. Find the external rate of return using the modified rate of return approach with a reinvestment rate of 15% per year and a borrowing rate of 8%. Additionally, after using the procedure, use the MIRR function to confirm your answer. Year 10 NCF, $ -9,000 4,100 The external rate of return is 2 -4,300 % per year. 5 -7,000 12,000 700 Saved The spreadsheet function is (Click to select) (Click to select) =RATE(6, 26122,-18243) =RATE(6,26122,,-18243) =RATE(6,-18243,26122) =RATE(6,-18243, 26122) 6 1,200
Harley worked for many years to save enough money to start his own residential landscape design business. The net cash flows shown are those he recorded for the first 6 years as his own boss. Find the external rate of return using the modified rate of return approach with a reinvestment rate of 15% per year and a borrowing rate of 8%. Additionally, after using the procedure, use the MIRR function to confirm your answer. Year 0 1 NCF, $ -9,000 4,100 2 -4,000 The external rate of return is 3 -7,000 % per year. The spreadsheet function is =RATE(6,-17986,,25972) 4 5 12,000 700 6 1,050
Lana Powell is seeking part-time employment while she teaches school. She is considering purchasing technical equipment that will enable her to start a small training services company that will offer tutorial services over the internet. Lana expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, she expects demand to stabilize. The following table presents the expected cash flows. Year of Operation Cash Inflow 2010 $6,500 4,500 7,000 7,000 In addition to these cash flows, Ms Powell expects to pay $7,300 for the equipment. She also expects to pay $1,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $750 salvage value and a four-year useful life. Ms Powell desires to earn a rate of return of 10 percent. What is the Net Present Value of the investment opportunity? (Round computations to the…
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Jim Bingham is considering starting a small catering business. He would need to purchase a delivery van and various equipment costing $150,000 to equip the business and another $60,000 for inventories and other working capital needs. Rent for the building used by the business will be $30,000 per year. Jim's marketing studies indicate that the annual cash inflow from the business will amount to $125,000. In addition to the building rent, annual cash outflow for operating costs will amount to $50,000. Jim wants to operate the catering business for only five years. He estimates that the equipment could be sold at that time for 10% of its original cost. The working capital will be fully released for other purposes at the end of the six years. Jim uses a 14% discount rate. needed; Would you advise Jim to make this investment?
Rogers Inc.is considering investing $320,000 in hardware and software to develop a business-to-business (B2B) portal. The company expects the portal to save $40,000 each year for seven years of its useful life. Please figure out the payback period. b) AND its accounting rate return