A1 David is considering purchasing a new point-of-sale computer system for his restaurant. The computer system will allow servers to process orders morequickly, plus it will easily integrate with his inventory management system. The new computer system will cost David $29,400 to purchase and setup. Theexpected net cash flow from savings is shown below.Using the payback method, in what year will David recover his investment?Do not enter dollar signs or commas in the input boxes.Use the negative sign for negative values.Year Expected Net Cash Flow Cumulative Net Cash Flows0$-29,400-294001$5,100-243002$7,500$ -168003$8,600$ -82004$8,5003005$6,2006500Year the investment is recovered: 2.03、、>

Calculate the payback period or the year in which the investment is recovered using Excel as…

Answered: David is considering purchasing a new…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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John Wiggins is contemplating the purchase of a small restaurant. The purchase price listed by the seller is $800,000. John has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be as follows: Required: Assuming that John desires a 10% rate of return on this investment, should the restaurant be purchased? (Assume that all cash flows occur at the end of the year.)
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.)
Jerry owns a restaurant and has the opportunity to buy a high-quality espresso coffee machine for $5,000. After carefully studying projected costs and revenues, Jerry estimates that the machine will produce a net cash flow of $1,600 annually and will last for five years. He determines that an interest rate of 10% is an adequate return on investment for his business. Calculate the present value of the machine to Jerry. Based on your calculation, do you think a decision to purchase the machine would be wise?
Cryptocurrency Finder is buying the first computer for their new server farm. Suppose the company paid $5,000for this computer, which it expects to last for three years. Describe how the company would account for the $5,000 expenditure under (a) the cash basis and (b) the accrual basis. State in your own words why the accrual basis is more realistic for this situation.
A series, or stream, of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and nonconstant, but the concept of the time value of money applies to uneven cash flows as well. Consider the following case: Swanky Beverage Co. expects the following cash flows from its manufacturing plant in Palau over the next 5 years: Year Annual Cash Flows 1 $4,100,000 $2,900,000 2 3 4 5 $3,000,000 $6,600,000 $5,600,000
Anthony operates a part time auto repair service. He estimates that a new diagnostic computer system will result in increased cash inflows of $1,500 in Year 1, $2,100 in Year 2, and $3,200 in Year 3. If Anthony's required rate of return is 10%, then the most he would be willing to pay for the new diagnostic computer system would be (Ignore income taxes.): Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice $4,599 $5,501 $5,638
Note: To fully answer this question, the use of numerical approximation methods is required. A spreadsheet may be useful too. Robert has struck an agreement to buy his dad's car. The sale takes place when Robert can pay the depreciated value of the car. The car is valued at $38,000 today but loses 0.5% in value each month due to depreciation. Robert starts a regular savings plan to buy the car and plans to invest $100 at the end of each month into an account that earns him 0.25% per month. (a) Calculate, to the nearest month, how long Robert must wait before he can buy the car? (b) Robert wants to have the car in ten years and so he searches for a bank account that can pay a higher interest rate. What is the minimum rate he must look for to achieve his goal? (c) The best offer rate Robert can find is 0.8% per month, but he is determined to get the car. He plans to revise his monthly savings amount. Calculate the minimum this has to be to achieve his goal.
Identify whether the situations described in the following table are examples of uneven cash flows or annuity payments: Description You recently moved to a new apartment and signed a contract to pay monthly rent to your landlord for a year. SOE Corp. hires an average of 10 people every year and matches the contribution of each employee toward his or her retirement fund. Franklinia Venture Capital (FVC) invested in a budding entrepreneur's restaurant. The restaurant owner promises to pay FVC 10% of the profit each month for the next 10 years. You have committed to deposit $600 in a fixed interest-bearing account every quarter for four years. Uneven Cash Flows O O Annuity Payments O O O O
On April 1, 2024, Antonio purchased appliances from the Acme Appliance Company for $2,200. In order to increase sales, Acme allows customers to pay in installments and will defer any payments for six months. Antonio will make 18 equal monthly payments, beginning October 1, 2024. The annual interest rate implicit in this agreement is 24%.
Mike is considering adding a deli to his general store. The remodeling expenses and shelving costs are estimated to be $27,500. Deli sales are expected to produce net cash inflows of $7,300, $8,600, $9,700, and $9,750 for Years 1 to 4, respectively. Leo has a firm 3-year payback requirement. Should he add the deli?
Tony owns a small business that he is attempting to sell. A potential buyer offers him $500,000 today, plus $1,500,000 two years from now and a balance of $1,700,000 three years from now. Tony always analyzes cash flows using a rate of 4% compounded annually. To compare this to other offers, which would be paid in cash immediately, he wants to know the present value of these future cash flows. Show the calculation and solution that you would present to Tony to use in his decision. Answer: 3398128.129 This problem needed answered: Continuing Problem 6 above, assume that as Tony receives each payment from the buyer, he can immediately invest it in a fund that returns a guaranteed 3.5% compounded annually. If he accepts the terms of this offer, how much will he have accumulated in this investment four years from now??
Use the present and future value tables provided in this week’s reading to solve the situations depicted below: 1. Bob’s Music Store is doing well in the area. He has some excess cash in the bank account and is looking at different alternatives that might bring more return than the meager rate his bank is offering. He currently receives 2% interest from his bank, which we will use to determine the net present value of each alternative. He has narrowed it down to two options: Alternative A: The first option is to upgrade and customize his computer system. The cost will be $3,000. He expects to save $1,800 per year in labor costs as a result of the additional automation. He also believes he will be able to sell any computer hardware for $500 at the end of the 3-year horizon he is looking at before having to upgrade once again. Alternative B: The second option is to expand his current inventory by offering a new line of guitars. The initial outlay of the expansion is $8,000. He expects…

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