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:
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 Cash Inflow Cash Outflow Year 1 Year 2 Year 3 Year 4 $33,000 37,000 40,000 40,000 $16,000 20,000 22,000 22,000 In addition to these cash flows, Aaron expects to pay $29,000 for the equipment. He also expects to pay $5,600 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 $4,800 salvage value and a four-year useful life. Aaron desires to earn a rate of return of 5 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: 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? b. 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 Cash Inflow Cash Outflow Year 1 Year 2 Year 3 Year 4 $33,000 37,000 40,000 40,000 $16,000 20,000 22,000 22,000 In addition to these cash flows, Aaron expects to pay $29,000 for the equipment. He also expects to pay $5,600 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 $4,800 salvage value and a four-year useful life. Aaron desires to earn a rate of return of 5 percent. (PV of $1 and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the net present value of the investment opportunity. Note: 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? b. Should the investment opportunity be accepted?
Expert Answer:
Answer rating: 100% (QA)
To calculate the net present value NPV of the investment opportunity we need to discount the cash in... View the full answer
Posted Date:
Students also viewed these accounting questions
-
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...
-
c) For the devices in your home networks, 31(x). Coffee-marca d) Fill out the IP address table below with your information for the network. This table represents the LAN network address for each...
-
EXERCISE 11-13 Transfer Pricing Situations LO11-3 In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y of the same company for use...
-
Consider the pistoncylinder assembly containing a pure gas shown below. The initial volume of the gas is 0.05 m3, the initial pressure is 1 bar, and the cross-sectional area of the piston is 0.1 m2....
-
Why is employee recognition an important reward?
-
Fly-fishing is a sport that challenges the person to cast a small feathery fly using a light rod and line. The goal is to place the fly accurately and lightly on the distant surface of the stream...
-
Villanova Company's manufacturing overhead budget shows total variable costs of ^1^8,000 and total Fixed costs of \($147,000\). Total production in units is expected to be 160,000. It takes 15...
-
A builder has located a piece of property that she would like to buy and eventually build on. The land is currently zoned for four homes per acre, but she is planning to request new zoning. What she...
-
Mr. Kanchan bought vacant land for 80 lakhs in March 2007. Registration and other expenses were 10% of the cost of land. He constructed a residential building on the said land for 100 lakhs during...
-
Consider the relationship 3r + 2t = 36. (a) Write the relationship as a function r = = f(t). -2 f(t) = t+10 x 3 (b). Evaluate.f.3). Enter an exact number. (c) Solve f(t) = 2. t =
-
1. list 5 facts about Jamaica's economic issues . 2. explain each fact and cite your resources 3. Pretend you are writing a professional Short Functional Report to your employer over Jamaica and 3...
-
Evaluate: log12 (122)
-
Explain the term 'selling' and identify one aspect of selling that is considered by societal marketing.
-
A second order measurement system has an effective mass of 1.5 kg and spring stiffness 50 kN/m. Assuming a unit ramp input, find the steady state error and time lag for (a) a critically damped...
-
discuss the use of scenario analysis and stress testing in risk assessment, particularly in financial and economic systems, and how these techniques can help prepare organizations for extreme events...
-
Examine a recent terrorist attack that occurred in a public area, such as a mall, office building, airport, school, or even a concert. Address the areas below. Begin with an introduction in which you...
-
You are a U.S. investor who purchased British securities for 2,000 one year ago when the British pound cost U.S. $1.50. What is your total return (based on U.S. dollars) if the value of the...
-
Construct a combined common-size and common-base year balance sheet for 2007. What will be the common-base year value for the 2007 net fixed assets? a. 0.89 b. 0.92 c. 1.12 d. 1.32 AHS INC. 2007...
-
What will be the value of AHS' equity multiplier during 2007? a. 0.44 b. 0.56 c. 1.78 d. 1.82 AHS INC. 2007 Income Statement (S in millions) Net sales S 9625 Cost of goods sold 5225 Depreciation 1890...
-
What will be the value of AHS' current ratio during 2007? a. 1.14 b. 1.42 c. 1.49 d. 1.53 AHS INC. 2007 Income Statement (S in millions) Net sales S 9625 Cost of goods sold 5225 Depreciation 1890...
Study smarter with the SolutionInn App