Jan 14, 2018

Please complete the following 5 exercises below in either Excel or a word document

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Week Five Problems

Please 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.

.next.ecollege.com/pub/content/c53d73fb-8ef3-4c21-b38d-f56f6fb8ae86/ACC_Week_Five_Assignment_WP.doc”>Week Five Exercise Assignment

Please use the following Present and Future Value Tables below as a resource to solving the assigned problems:

.next.ecollege.com/pub/content/1cbaaddf-53ac-4877-ae81-1b5fe9aaf231/Appendix_A___Future_Value_of_1.pdf”>Future Value of $1

.next.ecollege.com/pub/content/0dc9d1eb-856a-4430-895c-3b2b09ccc5dd/APPENDIX_C___Present_Value_of_1.pdf”>Present Value of $1

.next.ecollege.com/pub/content/da95529f-bd51-40de-b654-a2e9bc647fa9/APPENDIX_D___Present_Value_of_Ordinary_Annuity.pdf”>Present Value of Ordinary Annuity

Carefully review the .waypointoutcomes.com/assessment/3030/preview”>Grading Rubric for the criteria that will be used to evaluate your assignment.

ACC206 Week Five Problems

Please 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.

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.

2. Cash flow calculationsand net present
value

On 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.
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.

4.
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.

5.
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.

b.
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.


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