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 a 12% rate of return.
b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.
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 10% rate of
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 a 16% rate of return.
2. Cash flow calculationsand net present value
January 2, 20X1, Bruce Greene invested $10,000 in the stock market and
purchased 500 shares of Heartland Development, Inc. Heartland paid cash
dividends of $2.60 per share in 20X1 and 20X2; the dividend was raised
to $3.10 per share in 20X3. On December 31, 20X3, Greene sold his
holdings and generated proceeds of $13,000. Greene 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: Greene is entitled to the 20X3 dividend.
b. Compute the investment's net present value, rounding calculations to the nearest dollar.
c. Given the results of part (b), should Greene have acquired the Heartland stock? Briefly explain.
3. Straightforwardnet present value and internal rate of return
City of Bedford is studying a 600-acre site on Route 356 for a new
landfill. The startup cost has been calculated as follows:
Purchase cost: $450 per acre
Site preparation: $175,000
site can be used for 20 years before it reaches capacity. Bedford,
which shares a facility in Bath Township with other municipalities,
estimates that the new location will save $40,000 in annual operating
the landfill be acquired if Bedford desires an 8% return on its
investment? Use the net-present-value method to determine your answer.
4. Straightforward net-present-value and payback computations
Entertainment is considering the acquisition of a sight-seeing boat for
summer tours along the Mississippi River. The following information is
Cost of boat
10 summer seasons
Disposal value at the end of 10 seasons
Capacity per trip
Fixed operating costs per season (including straight-line depreciation)
Variable operating costs per trip
$5 per passenger
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 120,000 passengers
will be carried each season. Ignore income taxes.
using the net-present-value method, determine whether STL Entertainment
should acquire the boat. Assume a 14% desired return on all
investments- round calculations to the nearest dollar.
5. Equipment replacement decision
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 $8,700 of major repairs are performed in two years.
Annual cash operating costs total $27,200. Columbia can sell the
equipment now for $36,000; the estimated residual value in six years is
equipment is available that will reduce annual cash operating costs to
$21,000. The equipment costs $103,000, 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.
Columbia has a minimum desired return of 12% and depreciates all
equipment by the straight-line method.
using the net-present-value method, determine whether Columbia should
keep its present equipment or acquire the new equipment. Round all
calculations to the nearest dollar, and ignore income taxes.
management feels that the time value of money should be considered in
all long-term decisions. Briefly discuss the rationale that underlies