Karen's Pet Shop is considering the purchase of a new delivery van. Karen Smith, owner of...
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Karen's Pet Shop is considering the purchase of a new delivery van. Karen Smith, owner of the shop, has compiled the following estimates in trying to determine whether the delivery van should be purchased: Cost of the van Annual net cash flows Salvage value Estimated useful life Cost of capital Present value of an annuity of 1 Present value of 1 $35,700 6,120 4,120 8 years 10% 5.33493 0.46651 Karen's assistant manager is trying to convince Karen that the van has other benefits that she hasn't considered in the initial estimates. These additional benefits, including the free advertising the store's name painted on the van's doors will provide, are expected to increase net cash flows by $520 each year. TABLE 3 Present Value of 1 (n) Periods 1 2345 5 006849 10 11 12 13. 15 20 4% .96154 92456 88900 85480 82193 .79031 .74622 75992 71068 73069 .67684 70259 64461 .67556 61391 64958 .62460 60057 57748 55526 5% 6% 7% 0.93458 .95238 .94340 90703 .89000 0.87344 .86384 83962 0.81630 .82270 .79209 0.76290 78353 74726 0.71299 53391 51337 49363 .70496 .66506 .62741 59190 55839 47464 39573 45639 37689 .63017 0.66634 0.62275 0.58201 0.54393 52679 0.47509 49697 0.44401 46884 0.41496 44230 0.38782 0.36245 58468 55684 53032 50507 41727 48102 59627 58349 54703 54027 50187 50025 46043 46319 0.50835 42241 8% 9% 92593 .91743 85734 79383 0.33873 0.31657 39365 45811 37136 43630 41552 35034 0.29586 33051 0.27615 311801 0.25842 73503 70843 68058 .64993 .84168 .77218 75132 42888 ,39711 36770 34046 31524 38753 35554 32618 29925 27454 10% 11% .90909 .90090 .81162 82645 .68301 .62092 56447 51316 46651 42410 38554 35049 31863 .28966 26333 23939 25187 21763 19785 17986 16351 14864 12% .89286 79719 .73119 .71178 .65873 .63552 59345 56743 29189 27027 23107 21199 25025 23171 19449 21455 17843 53464 48166 43393 40388 .39092 36061 35218 .32197 31728 28584 25751 23199 20900 .50663 45235 -18829 16963 15282 13768 12403 28748 .25668 .22917 20462 18270 16312 .14564 13004 .11611 10367 15% .86957 75614 .65752 57175 49718 43233 37594 .32690 28426 24719 21494 .18691 16253 14133 12289 10687 .09293 08081 07027 06110 TABLE 4 Present Value of an Annuity of 1 Payments 1 2345 67 HN345 8 9 10 11 12 13 14 15 16 1829 17 20 4% .96154 1.88609 2.77509 3.62990 4.45182 5.24214 6.00205 6.73274 7.43533 8.11090 8.76048 9.38507 5% 6% 7% 8% 9% 10% 11% 95238 94340 0.93458 .92593 .90090 .91743 .90909 1.75911 1.73554 1.85941 1.83339 1.80802 1.78326 1.71252 2.40183 2.28323 2.72325 2.67301 2.62432 2.57710 2.53130 2.48685 2.44371 3.54595 3.46511 3.38721 3.31213 3.23972 3.16986 3.10245 3.03735 2.85498 4.32948 4.21236 4.10020 3.99271 3.88965 3.79079 3.69590 3.60478 3.35216 5.07569 4.91732 4.76654 4.62288 4.48592 4.35526 4.23054 4.11141 3.78448 5.78637 5.58238 5.38929 5.20637 5.03295 4.86842 4.71220 4.56376 4.16042 6.46321 6.20979 5.97130 5.74664 5.53482 5.33493 5.14612 4.96764 4.48732 7.10782 6.80169 6.51523 6.24689 5.99525 5.75902 5.53705 5.32825 4.77158 7.72173 7.36009 7.02358 6.71008 6.41766 6.14457 5.88923 5.65022 5.01877 7.88687 7.49867 7.13896 6.80519 6.49506 6.20652 5.93770 5.23371 8.38384 7.94269 7.53608 7.16073 6.81369 6.49236 6.19437 5.42062 8.85268 8.35765 7.90378 7.48690 7.10336 6.74987 6.42355 5.58315 9.89864 9.29498 8.74547 8.24424 7.78615 7.36669 6.98187 6.62817 5.72448 10.37966 9.71225 9.10791 8.55948 8.06069 7.60608 7.19087 6.81086 5.84737 8.31256 7.82371 7.37916 6.97399 5.95424 8.54363 8.02155 7.54879 7.11963 6.04716 8.75563 8.20141 7.70162 7.24967 6.12797 8.95012 8.36492 7.83929 7.36578 6.19823 9.12855 8.51356 7.96333 7.46944 6.25933 8.30641 8.86325 9.39357 12% 15% 89286 .86957 1.69005 1.62571 9.98565 10.56312 11.11839 11.65230 10.83777 10.10590 9.44665 8.85137 12.16567 11.27407 10.47726 9.76322 9.12164 12.65930 11.68959 10.82760 10.05909 9.37189 13.13394 12.08532 11.15812 10.33560 9.60360 13.59033 12.46221 11.46992 10.59401 9.81815 Calculate the net present value of the van, based on the initial estimates. (Enter negative amounts using either a negative sign preceding the number eg -45 or parentheses eg. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to O decimal places, e.g. 5,275.) Net present value S Should the van be purchased? Van be purchased. Karen's Pet Shop is considering the purchase of a new delivery van. Karen Smith, owner of the shop, has compiled the following estimates in trying to determine whether the delivery van should be purchased: Cost of the van Annual net cash flows Salvage value Estimated useful life Cost of capital Present value of an annuity of 1 Present value of 1 $35,700 6,120 4,120 8 years 10% 5.33493 0.46651 Karen's assistant manager is trying to convince Karen that the van has other benefits that she hasn't considered in the initial estimates. These additional benefits, including the free advertising the store's name painted on the van's doors will provide, are expected to increase net cash flows by $520 each year. TABLE 3 Present Value of 1 (n) Periods 1 2345 5 006849 10 11 12 13. 15 20 4% .96154 92456 88900 85480 82193 .79031 .74622 75992 71068 73069 .67684 70259 64461 .67556 61391 64958 .62460 60057 57748 55526 5% 6% 7% 0.93458 .95238 .94340 90703 .89000 0.87344 .86384 83962 0.81630 .82270 .79209 0.76290 78353 74726 0.71299 53391 51337 49363 .70496 .66506 .62741 59190 55839 47464 39573 45639 37689 .63017 0.66634 0.62275 0.58201 0.54393 52679 0.47509 49697 0.44401 46884 0.41496 44230 0.38782 0.36245 58468 55684 53032 50507 41727 48102 59627 58349 54703 54027 50187 50025 46043 46319 0.50835 42241 8% 9% 92593 .91743 85734 79383 0.33873 0.31657 39365 45811 37136 43630 41552 35034 0.29586 33051 0.27615 311801 0.25842 73503 70843 68058 .64993 .84168 .77218 75132 42888 ,39711 36770 34046 31524 38753 35554 32618 29925 27454 10% 11% .90909 .90090 .81162 82645 .68301 .62092 56447 51316 46651 42410 38554 35049 31863 .28966 26333 23939 25187 21763 19785 17986 16351 14864 12% .89286 79719 .73119 .71178 .65873 .63552 59345 56743 29189 27027 23107 21199 25025 23171 19449 21455 17843 53464 48166 43393 40388 .39092 36061 35218 .32197 31728 28584 25751 23199 20900 .50663 45235 -18829 16963 15282 13768 12403 28748 .25668 .22917 20462 18270 16312 .14564 13004 .11611 10367 15% .86957 75614 .65752 57175 49718 43233 37594 .32690 28426 24719 21494 .18691 16253 14133 12289 10687 .09293 08081 07027 06110 TABLE 4 Present Value of an Annuity of 1 Payments 1 2345 67 HN345 8 9 10 11 12 13 14 15 16 1829 17 20 4% .96154 1.88609 2.77509 3.62990 4.45182 5.24214 6.00205 6.73274 7.43533 8.11090 8.76048 9.38507 5% 6% 7% 8% 9% 10% 11% 95238 94340 0.93458 .92593 .90090 .91743 .90909 1.75911 1.73554 1.85941 1.83339 1.80802 1.78326 1.71252 2.40183 2.28323 2.72325 2.67301 2.62432 2.57710 2.53130 2.48685 2.44371 3.54595 3.46511 3.38721 3.31213 3.23972 3.16986 3.10245 3.03735 2.85498 4.32948 4.21236 4.10020 3.99271 3.88965 3.79079 3.69590 3.60478 3.35216 5.07569 4.91732 4.76654 4.62288 4.48592 4.35526 4.23054 4.11141 3.78448 5.78637 5.58238 5.38929 5.20637 5.03295 4.86842 4.71220 4.56376 4.16042 6.46321 6.20979 5.97130 5.74664 5.53482 5.33493 5.14612 4.96764 4.48732 7.10782 6.80169 6.51523 6.24689 5.99525 5.75902 5.53705 5.32825 4.77158 7.72173 7.36009 7.02358 6.71008 6.41766 6.14457 5.88923 5.65022 5.01877 7.88687 7.49867 7.13896 6.80519 6.49506 6.20652 5.93770 5.23371 8.38384 7.94269 7.53608 7.16073 6.81369 6.49236 6.19437 5.42062 8.85268 8.35765 7.90378 7.48690 7.10336 6.74987 6.42355 5.58315 9.89864 9.29498 8.74547 8.24424 7.78615 7.36669 6.98187 6.62817 5.72448 10.37966 9.71225 9.10791 8.55948 8.06069 7.60608 7.19087 6.81086 5.84737 8.31256 7.82371 7.37916 6.97399 5.95424 8.54363 8.02155 7.54879 7.11963 6.04716 8.75563 8.20141 7.70162 7.24967 6.12797 8.95012 8.36492 7.83929 7.36578 6.19823 9.12855 8.51356 7.96333 7.46944 6.25933 8.30641 8.86325 9.39357 12% 15% 89286 .86957 1.69005 1.62571 9.98565 10.56312 11.11839 11.65230 10.83777 10.10590 9.44665 8.85137 12.16567 11.27407 10.47726 9.76322 9.12164 12.65930 11.68959 10.82760 10.05909 9.37189 13.13394 12.08532 11.15812 10.33560 9.60360 13.59033 12.46221 11.46992 10.59401 9.81815 Calculate the net present value of the van, based on the initial estimates. (Enter negative amounts using either a negative sign preceding the number eg -45 or parentheses eg. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to O decimal places, e.g. 5,275.) Net present value S Should the van be purchased? Van be purchased.
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Managerial Accounting Tools For Business Decision Making
ISBN: 9781119754053
9th Edition
Authors: Jerry J Weygandt, Paul D Kimmel, Jill E Mitchell
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