Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/6648e033699bd_0186648e032e5523.jpg)
Transcribed Image Text:
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: Year of Operation Year 1 Cash Inflow Cash Outflow $12,700 Year 2 19,600 Year 3 Year 4 21,200 21,200 $ 9,900 11,600 12,600 12,600 In addition to these cash flows, Aaron expects to pay $20,900 for the equipment. He also expects to pay $3,200 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 $1,900 salvage value and a four year useful life. Aaron desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to 2 decimal places.) b. Indicate whether the investment opportunity is expected to earn a return that is above or below the desired rate of return and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? Should the investment opportunity be accepted? 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: Year of Operation Year 1 Cash Inflow Cash Outflow $12,700 Year 2 19,600 Year 3 Year 4 21,200 21,200 $ 9,900 11,600 12,600 12,600 In addition to these cash flows, Aaron expects to pay $20,900 for the equipment. He also expects to pay $3,200 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 $1,900 salvage value and a four year useful life. Aaron desires to earn a rate of return of 9 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the net present value of the investment opportunity. (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to 2 decimal places.) b. Indicate whether the investment opportunity is expected to earn a return that is above or below the desired rate of return and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? Should the investment opportunity be accepted?
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
1. What responsibility does an organization have to ensure that its suppliers and business partners behave ethically? To whom is this responsibility owed? 2. How can an organization monitor the...
-
The Wilkerson Corporation issued $1 million of 13.5% bonds for $985,071.68. The bonds are dated and issued October 1, 2007, are due September 30, 2011, and pay interest semiannually on March 31 and...
-
Using a 0.05 significance level, test the claim that the choice of machine has no effect on the production output. Identify the test statistic and critical value, and state the conclusion.
-
People often think that only accountants need to know accounting. Many students may not consider taking accounting because they have no interest in being an accountant. Whether students aspire to be...
-
If Bob and Judy combine their savings of $1,260 and $975, respectively, and deposit this amount into an account that pays 2% annual interest, compounded monthly, what will the account balance be...
-
AA 13-2 Comparative Analysis LO C1, P2 Key figures for Apple and Google follow. $ millions Cash and equivalents Apple Google Accounts receivable, net $ 23,646 28,184 $ 21,879 40,258 Inventories 4,946...
-
According to Hofstede, countries such as Malaysia and the Philippines are likely to assume that employees must treat managers with respect and deference because the employee is lower in the...
-
What type of information must VHWOs provide in a statement of functional expenses?
-
What are the different standards of review in constitutional law, and when are they used?
-
How do specialized courts, such as drug treatment courts, differ from traditional courts? What do you think is the most important difference between these types of courts?
-
What is the primary benefit of an S-corp.?
-
What are the pros and cons of prosecuting juveniles in adult criminal courts? Would you favor or oppose a "blanket rule" that all crimes involving youth under a certain age-say 16-must be adjudicated...
-
John turned 58 years old he plans to retire in 12 years. When he retires, he would like to take an extended vacation, which he expects will cost at least $40,000. What lump-sum amount must he invest...
-
On March 31, 2018, Gardner Corporation received authorization to issue $30,000 of 9 percent, 30-year bonds payable. The bonds pay interest on March 31 and September 30. The entire issue was dated...
-
Using the notation from Exercises 11-13, Cook's distance for observation \(i\) is defined as \[ D_{i}:=\frac{\widehat{\boldsymbol{Y}}-\widehat{\boldsymbol{Y}}^{(i)^{2}}}{p S^{2}} \] It measures the...
-
Take the linear model \(\boldsymbol{Y}=\mathbf{X} \boldsymbol{\beta}+\varepsilon\), where \(\mathbf{X}\) is an \(n \times p\) model matrix, \(\varepsilon=\mathbf{0}\), and \(\mathbb{C o...
-
Consider a normal linear model \(\boldsymbol{Y}=\mathbf{X} \boldsymbol{\beta}+\varepsilon\), where \(\mathbf{X}\) is an \(n \times p\) model matrix and \(\varepsilon \sim \mathscr{N}\left(\mathbf{0},...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App