A contract is estimated to yield net annual returns of $31,000 for seven years. To secure the contract, an immediateoutlay of $150,000 is required. Interest is 11% compounded annually.Calculate the net present value (NPV) of the contract and determine whether the project should be accepted orrejected according to the net present value criterion.The net present value of the project is $(Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal placesas needed.)Should the project be accepted or rejected?The project should be

Net Present Value ( >NPV) :> Net present Value as the name suggests is the present value of…

The net present value of the project is (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) Should the project be accepted or rejected? The project should be

The net present value of the project is (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) Should the project be accepted or rejected? The project should be

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

See similar textbooks

Related questions

Q: Franklin Company deposts all cash receipts on the day they are received and makes all cash payments…

A: A Bank Reconciliation Statement is a summary statement prepared at the end of every month to…

Q: ARR exercise proposed 1 ChemEng Company is looking to invest in some new machinery to replace its…

A: Accounting Rate of Return (ARR) is the formula that determines the percentage of annual profit…

Q: Before considering a net operating loss carryforward of $75 million, Fama Corporation reported $110…

A: Tax payable refers to the amount of tax that an individual or entity owes to the government based on…

Q: A bond was issued at the beginning of the accounting year (01/02/2018) for $6,000. The bond has a…

A: When a discount on a bond payable is amortized, it increases the carrying value of the bond payable.…

Q: A machine is purchased on September 30, 2024, for $60,000. Useful life is estimated at four years…

A: Annual depreciation using SLM = (Cost - Residual value) / useful lifeDepreciation for partial period…

Q: Following are the issuances of stock transactions. 1. A corporation Issued 2,000 shares of $20 par…

A: JOURNAL ENTRIESJournal Entry is the First stage of Accounting Process. Journal Entry is the Process…

Q: Indirect operating expenses are normally a. precise expenses determined by managers. b.…

A: Indirect operating expenses, also known as indirect costs or overhead costs, are expenses that…

Q: E. PART E PROBLEM. USE SEPARATE EXCEL ANSWER SHEET. Suppose your business borrow $14,000 from the…

A: The scenario involves taking out a loan of $14,000 to finance the purchase of a car. The loan…

Q: Bombers Corporation began operations in 2026. Its ending inventory at cost and at LCNRV at the end…

A: The net realizable value indicates the net sale value of the inventory to be realized on selling it.…

Q: Based on the following data, what is the accounts receivable turnover? Line Item Description…

A: The objective of the question is to calculate the accounts receivable turnover based on the given…

Q: Weaver Corporation had the following stock issued and outstanding at January 1, Year 1. 1.68,000…

A: The dividend is part of the profits that the company pays to its shareholders. Herein the…

Q: Royal Company manufactures 10,000 units of Part R-3 each year. At this level of activity, the cost…

A: Make-or-buy decisionA make-or-buy decision is an act of choosing between manufacturing a product…

Q: Degernes Corporation is considering investing $33,000 in a new machine . The machine is expected to…

A: Note : There is no detail of salvage value and I am assuming it to be $8,000 as I have done similar…

Q: Scott and Laura are married and will file a joint tax return. Scott has a sole proprietorship (not a…

A: Taxable income is the amount of the person's income that is taxed after all the deductions and…

Q: Han Products manufactures 38,000 units of part S-6 each year for use on its production line. At this…

A: MAKE OR BUY DECISIONIn certain situations the manufacturer has to decide as to whether a certain…

Q: Use the following selected 2019 balance sheet and income statement information for Homer Glen Supply…

A: "The gross profit percentage is a financial metric that reveals the connection between a company's…

Q: The following information as to earnings and deductions for the weekly pay period ended March 9 was…

A: The net pay is the pay which has been computed from the gross pay when the deductions are deducted…

Q: The first accounting method for a firm is adopted by:

A: The first accounting method for a firm is typically adopted by filing a tax return. This establishes…

Q: A condensed income statement by product line for Lavonia Beverage Inc. indicated the following for…

A: It is the process of making decisions that involve the management of costs in order to achieve…

Q: QUESTION 40 Rich & Sweet Candy Company's budgeted contribution income statement assumed it would…

A: Fixed costs are the essential expenses that stay the same, no matter how much a business produces or…

Q: Prisha received an invoice for $5,000 that had payment terms of 3/5 n/30. She made a partial payment…

A: In This question which require us to calculate the amount credited and balance of invoice after…

Q: ion on four investment proposals is given below: Investment Proposal A B C D Investment required $…

A: In the Profitability Index, we can compare the present value of projected cash flows to the initial…

Q: In 2025, Oriole Corporation began selling a new line of products that carry a two-year warranty…

A: The warranty expenses are estimated in the basis of past year expenses related to expenditures…

Q: Arrasmith Corporation uses customers served as its measure of activity. During February, the company…

A: Flexible budgets are prepared for various levels within the relevant range.In Flexible budget…

Q: Journalize the following transactions: March 1 Received a $3,000, 90 day, 18 percent promissory note…

A: Journal entry is the act of keeping records of transactions in an accounting journal. An accounting…

Q: Tyrell Company entered into the following transactions involving short-term liabilities. Year 1…

A: Interest is computed based on Principal amount, Rate of interest and period due.Interest accrual is…

Q: Quality Control Activities Activity Cost Process audits $50,300 Training of machine operators…

A: In the context of quality control activities, prevention costs are incurred to prevent defects or…

Q: 393,900 $113,900 5 years 192,000 $ 52,800 7 years 78,100 $ 28,100 6 years 1,038,160 $ 258,100 6…

A: The Profitability Index is a financial indicator that compares the present value of predicted future…

Q: The average collection period. (The accounts receivable at the beginning of last year totaled…

A: Average Collection Period is a metric used to analyze a company's collection efficiency and also…

Q: The following information applies to the questions displayed be Shadee Corporation expects to sell…

A: Budgeteing is an important tool in helping companies for creating financial plans to predict and…

Q: Pharoah Company provides the following information about its defined-benefit pension plan for the…

A: The amount that is charged to an organisation's profit and loss statement as an expenditure in…

Q: Plum Corporation began the month of May with $1,300,000 of current assets, a current ratio of…

A: Current ratio: the current ratio is calculated by dividing the total current assets by the total…

Q: EBC specializes in consulting all of the following organizations except: Select one: O O O A. County…

A: Exclusive Business Consulting (EBC) is a strategy consulting firm that focuses on premium markets.…

Q: Carla Vista Company, which follows ASPE, uses the gross profit method to estimate inventory for…

A: Ending inventory is a portion of the inventory purchased remaining at the end of the accounting…

Q: The assets and liabilities of Thompson Computer Services at March 31, the end of the current year,…

A: The objective of the question is to prepare an income statement for Thompson Computer Services for…

Q: Analyze each transaction from Issuances of stock by showing its effect on the accounting…

A: The accounting equation states that the total assets are always equal to the sum of the total…

Q: Helen Strand's regular hourly wage rate is $14, and she receives an hourly rate of $21 for work in…

A: Gross pay is employees' earnings before making any deductions like taxes, benefits and other payroll…

Q: Warehouse Construction Cost Data Purchase price - Land $125,000 Operation manager's monthly salary…

A: Land has been excluded due to it shown seprately and Land is not depreciable. Other cost will not be…

Q: How can a taxpayer combine real estate undertakings?

A: Combining real estate undertakings for tax purposes involves careful consideration of the tax…

Q: Indicate the effect each separate transaction has on investing cash flows. Note: Amounts to be…

A: Cash Flow is a financial statement that includes inflows and outflows of cash during the financial…

Q: Assume that purchases were recorded correctly and that no correcting entries were made at December…

A: Errors are mistakes or omissions which are made by an accountant, intentionally or unintentionally,…

Q: Portia Grant is an employee who is paid monthly. For the month of January of the current year, she…

A: Net pay is the amount of compensation that remains available for distribution to an employee after…

Q: The unadjusted trial balance of ABC Company reports the following balances at the end of the year:…

A: Allowance for doubtful accounts is a contra asset account and is deducted from accounts receivable…

Q: During January, a company that uses a perpetual inventory system had beginning inventory, purchases,…

A: Cost of goods sold indicates to the cost of inventory associated with the units being sold during…

Q: What is the cash conversion cycle for ABC corporation using the following information: sales :…

A: A financial metric called the cash conversion cycle (CCC) calculates the time it takes for a…

Q: Ivanhoe Company sells product 1976NLC for $40 per unit. The cost of one unit of 1976NLC is $37, and…

A: The concept of Valuing Inventory applying lower-of-cost-or-market Value.In this method, we compare…

Q: [The following information Project Y requires a $316,500 investment for new machinery with a…

A: Annual net cash flow = Net income + DepreciationNet present value is computed as present value of…

Q: Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 2012 and 20Y1 Sales…

A: According to the question given, we need to prepare the comparative income statement.Comparative…

Q: Petoskey Manufacturing, which produces a single product, has prepared the following standard cost…

A: Direct costs are the expenses that are directly used for the production of goods and services for…

Q: 5. Queens Company issues $1M of 6%, 20-year bonds payable on 3/1/2024, which are sold at a price of…

A: The discount on bonds arises when the market offers higher interest earnings than the bonds. The…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A contract is estimated to yield net annual returns of $31,000 for seven years. To secure the contract, an immediate
outlay of $150,000 is required. Interest is 11% compounded annually.
Calculate the net present value (NPV) of the contract and determine whether the project should be accepted or
rejected according to the net present value criterion.
The net present value of the project is $
(Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places
as needed.)
Should the project be accepted or rejected?
The project should be

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Step 1 - Introduction and given details

VIEW

Step 2: Step 2 - Computation of NPV

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
A contract is estimated to yield net annual returns for $ 14000 for years. To secure the contract, an immediate outlay of $70000 is required. Interest is 13 % compounded. Calculate the net present value (NPV) of the contract and determine whether the project should be accepted or rejected according to the net present value criterion.
An investment proposal calls for $447,581 payment now and a second $210,865 14 years from now. The investment is for a project with a perpetual life. The annual interest rate is 6%. What is the approximate capitalized cost?
A project has an initial outlay of $1,567. The project will generate annual cash flows of $443 over the 5-year life of the project and terminal cash flows of $345 in the last year of the project. If the required rate of return on the project is 19%, what is the net present value (NPV) of the project? Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.
You are required to investigate the following project: The initial Investment at n=0 is $100,000. The project life is 10 years. Estimated annual operating cost : 34,000. The required minimum return on the investment :14%. The salvage value 8,000. What is the minimum annual revenues that should be generated to make the project worthwhile? 97842 52758 81921 45716 O O O O
You wish to evaluate a project requiring a $60,100 initial investment and having a useful life of seven years. What minimum annual cash inflow do you need if the cost of capital is 8.2%? If the project earns $12,900 per year, what is its IRR? Is the project acceptable? The minimum annual cash inflow necessary is $ (Round to the nearest cent.)
Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $28,000; project Helium requires an initial outlay of $34,000. Using the expected cash inflows given for each project in the following table, . calculate each project's payback period. Which project meets Elysian's standards? The payback period of project Hydrogen isOyears. (Round to two decimal places.) i Data Table (Cick on the icon here e in order to copy the contents of the data table below into a spreadsheet.) Expected cash inflows Hydrogen Year Helium $6,500 $8,000 $5,000 $8,500 $8,000 $7,000 2 3 $3,000 $4,500 $3,500 $5,000 6 $2,500 $4,000 Print Done
A project requires an initial investment of $322,990 and its expected life is 7 years. Net operating income from the project is expected to be $28,100 each year, including depreciation of $42,270. The salvage value of the assets is expected to be $27,100 at the end of the life of the project. Ignoring income taxes, the payback period is: (Round your answer to 2 decimal places.) Payback period years
A project has an initial cost of $90,400, a life of 9 years, and equal annual cash inflows. The required return is 8.4 percent. According to the profitability index decision rule, what is the minimum annual cash flow necessary to accept the project?
A new IS project is to be developed with an initial cost of1.5million and a maintenance cost of 100,000 annually (excluding the first year). It is expected that this project will generate 600,000 annually, starting from the first year. a. Show the payback projection for the project in the first five years. b. Calculate the net present value (NPV) in five years for the project using a discount rate of20%. c. Calculate the internal rate of return (IRR) if the target is to break even in 3 years.
A project is expected to create operating cash flows of $30,000 a year for three years. Theinitial cost of the fixed assets is $60,000. These assets will be worthless at the end of the project.An additional $10,000 of net working capital will be required throughout the life of the project. Whatis the project net present value if the required rate of return is 10%? Provide proof of youralternatives.
The company XYZ is deciding whether or not to on a new project with an initial cost of 5.5 MM$. Net cash inflows are expected to be 9 MM$ for each of the first five years of operations. In the sixth year, the abandonment cost of the project is 35 MM$. a. Develop and plot the NPV profile for the projectb. Should the project be accepted at a rate of return of 8%? Should it be accepted at a rate of return of 15%? c. What is the project GRR if the available reinvestment rate is 8%? What if the rate is 15%?