Future Value of a Single
Jenkins Products has just been paid $25,000 by Shirley Enterprises, which has owed Jenkins this amount for 30 months but been unable to pay because of financial difficulties. Had it been able to invest this cash, Jenkins assumes that it would have earned an interest rate of 12% compounded monthly (1% per month).
Required:
Note: Round answers to two decimal places.
1. Prepare a cash flow diagram for the investment that could have been made if Shirley had paid 30 months ago.
2. Determine how much Jenkins has lost by not receiving the $25.000 when it was due 30 months ago.
3. CONCEPTUAL CONNECTION Indicate whether Jenkins would make an entry to account for this loss. Why or why not?
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Cornerstones of Financial Accounting
- Kabab Co. is considering a $240,000 investment, which will provide net returns of $110,000, $160,000, and $220,000 in the second, third, and fourth years, respectively. What is the payback period? Round up to the next month Use the following table: Cumulative Cash Cash Outflow Çash Inflow Net Cash Year Flow Flow 2 years and 10 months Ob. 2 years and 9 months 2 years and 11 months Od. 2 years and 8 monthsarrow_forwardDirections: Solve all problems completely. Draw the Cash Flow Diagram. Write the formula, substitute values, and BOX the final answer. Observe accuracy: two decimal places for non-interest values and at least four (4) decimal places for interest values. What is the future worth of P1,000 if it is invested at 12% compounded annually for the first year, 14% compounded quarterly on the second and third years, 16% compounded semi-annually on years 4,5,6 and 12% compounded monthly on the years 7-10? A man borrowed P5,000 to be paid after two years with interest at 12% compounded quarterly and P10,000 to be paid after 3 years at 12% compounded monthly. What single payment must he pay after 5 years at an interest rate of 16% compounded semi-annually to settle the two obligations? What single equivalent amount will accumulate from an investment of P400 in 20 years at 8% compounded semi-annually?arrow_forwardMendez Company has identified an investment project with the following cash flows. Year Cash Flow 1 $ 1,150 2 1,030 3 1,520 4 1,880 If the discount rate is 11 percent, what is the present value of these cash flows? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What is the present value at 16 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What is the present value at 22 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.arrow_forward
- Dalvi Incorporated is considering a new Investment. The table below lists the cash flows. Year Cash Flows -$25,400 1 $6,300 2 $7,700 3 $11,400 Calculate the Payback period Calculate the NPV and IRR. Assume that the interest rate is 0%.arrow_forwardHarrison, Inc. is considering two investment opportunities. Each investment costs $7,000 and will provide the same total future cash inflows. The schedule of estimated cash receipts for each investment follows (assume cash is received at year-end): 16. 17. b. C. Year 1 Year 2 Year 3 Year 4 Total d. Which investment should Harrison choose assuming all other variables for the two investments are the same? a. Investment 1 $3,000 2,500 2,000 1,500 $9,000 Investment 2 $1,000 2,000 3,000 3,000 $9,000 Harrison should be indifferent between the two investments because they provide the same total cash inflows. Harrison should choose Investment I because of the time value of money. Harrison should be indifferent between the two investments because the initial cash outflow is the same. Harrison should choose Investment II because it generates larger cash inflows at the end of the investment's useful life. C. $926 d. $7,227 Assuming an 8% minimum rate of return, what is the net present value of…arrow_forwardCalculate the following from the information given Fego Ltd:1. Payback Period (expressed in years, months and days).2. Accounting Rate of Return on initial investment (expressed to two decimal places).3. Internal Rate of Return (expressed to two decimal places) if the net cash inflows are R400 000 per year for five years. Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation.arrow_forward
- Mendez Company has identified an investment project with the following cash flows. Year 1 Cash Flow $870 1,230 234 1,490 1,650 a. If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value at 20 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the present value at 30 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Present value at 10% b. Present value at 20% c. Present value at 30%arrow_forwardMendez Company has identified an investment project with the following cash flows. Year Cash Flow 1 $770 2 1,030 3 1,290 4 1,400 a. If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value at 17 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the present value at 25 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)arrow_forwardMendez Company has identified an investment project with the following cash flows. Year 1. Cash Flow $ 470 610 735 920 a. If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value at 18 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the present value at 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.., 32.16.) a. Present value at 10 percent b. Present value at 18 percent c. Present value at 24 percent 234arrow_forward
- 2) What is mark-to-market accounting? a. Hint: Use an example to demonstrate the type of accounting Enron was engaging in. The following sequence of cash flows will be helpful. Assume a 10% discount rate. t = 0 t = 1 4,950.00 t = 2 9,680.00 t = 3 (25,000.00) 16,637.50 First, calculate the accounting income for each year (i.e., use historical cost accounting). Second, calculate the income using Enron's method (i.e., fair value accounting).arrow_forwardFrom Part A above, assume that the bank decided to give a loan of $ 59 million to Zenith Corporation (recorded for initial year). Zenith-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59 1 4 2 5 3 6 4 7.33 5 8 6 8.25 Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume discount rate 13% This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.arrow_forwardA company is expecting annual cash flows of $10,000 in years 6 to 10; $20,000 annually in years 11 to 20; and $40,000 in years 21 to 30. Given a nominal rate of 4.25% compounded semi-annually, determine the net present value of the cash flows. When entering your answer, round your values to the nearest dollar, and use a $ symbol, as well as the correct comma separator. For example $234,567 Answer: A company is expecting annual cash flows of $10,000 in years 6 to 10; $20,000 annually in years 11 to 20; and $40,000 in years 21 to 30. Given a nominal rate of 4.25% compounded semi-annually, determine the net future value of the cash flows. When entering your answer, round your values to the nearest dollar, and use a $ symbol, as well as the correct comma separator. For example $234,567 Answer:arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning