Accounting

NO.

POINTS

EARNED POINTS

COMMENT

1

45

2

20

3

25

4

30

5

25

6

25

TOTAL

170

Since 155 = 100%, there are 15 bonus points

1. The Sedlik Group is considering three investment opportunities with cash flows as described below. Ignore income taxes in this problem.

PROJECT RX17:

CASH INVESTMENT NOW $15,000

CASH INFLOW – END OF YEAR 5 $21,000

CASH INFLOW – END OF YEAR 8 $21,000

PROJECT BQ81:

CASH INVESTMENT NOW $16,000

ANNUAL CASH OUTFLOW FOR 5 YEARS $3,000

CASH INFLOW – END OF YEAR 5 $21,000

PROJECT MP12:

CASH INVESTMENT NOW $31,000

ANNUAL CASH INFLOW FOR 4 YEARS $11,000

CASH OUTFLOW – END OF YEAR 3 $5,000

ADDITIONAL CASH INFLOW – END OF YEAR 4 $11,000

REQUIRED:

1. DRAW A TIME LINE GRAPH FOR EACH PROJECT.

2. COMPUTE THE NET PRESENT VALUE FOR EACH PROJECT USING A 12% DISCOUNT RATE.

3. RANK THE PROJECTS.

4. SINCE THE SEDLIK GROUP ONLY HAS A CAPITAL FUND OF $50,000, WHICH PROJECTS SHOULD THEY PURSUE?

· PROJECT RX17 – INITIAL INVESTMENT = ___________

· PROJECT BQ81 – INITIAL INVESTMENT = ___________

· PROJECT MP12 – INITIAL INVESTMENT = ___________

· TOTAL =

TOTAL INITIAL CAPITAL INVESTMENT CANNOT EXCEED $50,000

Hasson Corporation is investigating the purchase of a new computerized scheduling system with special hardware with a useful life of 9 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding its intangible benefits, is -$505,000. Ignore income taxes in this problem.

Required:

1. DRAW A TIME LINE GRAPH FOR THIS PROJECT.

2. Applying your knowledge of annuity tables, calculate the annuity amount that would create an NPV of zero.

3. How large would the additional cash flow per year from the intangible benefits have to be to make the investment in the automated equipment financially attractive? 

Watt Family Amusement Park is considering purchasing a new CYCLONE GYRATION ride for $100,000 that would have a useful life of 15 years and a salvage value of $20,000. The ride would require annual operating costs of $25,000 throughout its useful life. The company's discount rate is 12%.

Management is unsure about how much additional ticket revenue the new ride would generate-particularly since customers pay a flat fee when they enter the park that entitles them to unlimited rides. Hopefully, the presence of the ride would attract new customers. Ignore income taxes in this problem. Required:

1. DRAW A TIME LINE GRAPH FOR THIS PROJECT.

2. How much additional revenue would the ride have to generate per year to make it an attractive investment? 

3. If the CYCLONE GYRATION annual attendance reaches 40,000 attendees a year, what would you suggest for an increase in the ticket price in rounded dollars per ticket?

Savitsky Company's required rate of return is 12%. The company has an opportunity to be the exclusive distributor of a very popular consumer item – portable whizzers.

After expenses, except for rent, they will earn $20,000 per year for the five-year life of the project.

No new equipment would be needed, but the company would have to use one-fourth of the space in a warehouse it owns. The effective rent for the space they need is $2,000 per year for the first three years and $3,000 per year for the next 2 years.

Their only cash investment is a $150,000 Working Capital allocation to carry inventories and accounts receivable for the new product line. The Working Capital will be tied up for 5 years and then released at the end of 5 years.

Required:

1. DRAW A TIME LINE GRAPH FOR THIS PROJECT.

2. COMPUTE THE NET PRESENT VALUE USING A 12% DISCOUNT RATE.

Davis Corporation has provided the following data concerning a proposed investment project. Ignore income taxes in this problem.    The company uses a discount rate of 10%. The working capital would be released at the end of the project. Required:

1. DRAW A TIME LINE GRAPH FOR THIS PROJECT.

2. COMPUTE THE NET PRESENT VALUE USING A 10% DISCOUNT RATE.

Tyndell Corporation is considering the purchase of a milling machine that would cost $370,000, would last for 9 years, and has salvage value of 30,000. The machine would reduce labor and other costs by $63,000 per year. The company requires a minimum pretax return of 10% on all investment projects. Ignore income taxes in this problem. Required:

1. DRAW A TIME LINE GRAPH FOR THIS PROJECT.

2. COMPUTE THE NET PRESENT VALUE USING A 10% DISCOUNT RATE.

3. IF TYNDELL’S EXPECTED A 12% RATE, WOULD THEY BUY THIS MACHINE?

· Choose YES ☐ or NO ☐ & EXPLAIN - BECAUSE:________________________