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# Chapter 8 Exercise 1: 1. Basic present value calculations

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Chapter 8 Exercise 1:
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.
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 10% 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 a 16% rate of return.

Chapter 8 Exercise 4:
4. Cash flow calculations and net present value
On January 2, 19X1, XXXXX XXXXXe 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 19X1 and 19X2; the dividend was raised to \$3.10 per share in 19X3. On December 31, 19X3, 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 19X3 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.

Chapter 8 exercise 5:
5. Straightforward net present value and internal rate of return
The 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

The 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 costs.
a. Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the net-present-value method to determine your answer.
b. Compute the internal rate of return on this project.

Chapter 8 Problem 1:
1. Straightforward net-present-value and payback computations
STL 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 \$500,000
Service life 10 summer seasons
Disposal value at the end of 10 seasons \$100,000
Capacity per trip 300 passengers
Fixed operating costs per season (including straight-line depreciation) \$160,000
Variable operating costs per trip \$1,000
Ticket price \$5 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 120,000 passengers will be carried each season. Ignore income taxes.

Instructions:
By 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.

Chapter 8 Problem 4:
4. Equipment replacement decision
Columbia 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 \$5,000.
New 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.

Instructions:
a. By 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.
Columbia'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.
Submitted: 1 year ago.
Category: Multiple Problems
Expert:  Manal Elkhoshkhany replied 1 year ago.

Hello

Please advise your deadline as well as the name of the book you are using: Title, author's name, and edition

Thank you

Customer: replied 1 year ago.

The dead line is 3/04/2013 at 12:00 p.m.

The ISBN# XXXXX The second ISBN# XXXXX The name of the course is Accounting 206, Principles of
Accounting 2, (2012). San Diego, CA. Bridgepoint Edcuation. The Text is a conseteulation course digital material, BBD1305A (CDM), Title copyright, publish by Bridgepoint Education, Inc. Editor-in chief: Steve Wainwright

Customer: replied 1 year ago.

Thank you

Expert:  Manal Elkhoshkhany replied 1 year ago.

I will check the questions and get back to you in a couple of hours as I am helping someone now with a timed assignment

Thank you

Customer: replied 1 year ago.

Just checking to see if you are locking-in my assignment for monday .

Thank You

Expert:  Manal Elkhoshkhany replied 1 year ago.

Hello

I started working on the questions, but I am not sure if I will be able to meet the deadline as I might need to take mom to the hospital, I will opt out in case another expert can help. If I am done before the deadline and no one has posted the solutions, I will post mine.

P.S. Please advise the second book's ISBN or a link to the book's website if available

Thank you

Customer: replied 1 year ago.

3/2013

There is no other Text book for the second ISBN#, but the only two ISNBN numbers that I sent you. (There's Only One Text Book). There is no website link that I am aware of for this text.

Thank you. M.J.

P/S: If possible, Need a answer by monday at 10;00 P.M. Central time.I can accept after that day which is 3/05 /2013 but would be a day late.

Hope your mom feel better.

Thank you

I may

Customer: replied 1 year ago.

Hello, expert I just found out the assignment must be finish by the 03/04/2013 at 10 p.m. CST.

THAK YOU FOR YOUR TIME

Expert:  F. Naz replied 1 year ago.
Have a nice day

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