Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a...
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Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product:
- Expected annual revenues: $720,000
- Projected product life cycle: five years
- Equipment: $800,000 with a salvage value of $100,000 after five years
- Expected increase in working capital: $110,000 (recoverable at the end of five years)
- Annual cash operating expenses: estimated at $432,000
- Required rate of return: 8 percent
The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.
Required:
1. Estimate the annual cash flows for the new product. Enter cash outflows as negative amounts and cash inflows as positive amounts.
Year Cash Flow 0 $ 1–4 $ 5 $ 2. Using the estimated annual cash flows, calculate the NPV.
$3. What if revenues were overestimated by $144,000? Redo the NPV analysis, correcting for this error. Assume the operating expenses remain the same. Enter cash outflows as negative amounts and cash inflows as positive amounts.
Year Cash Flow Present Value 0 $ $ 1–4 5 Net present value $
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Carsen Sorensen, controller of Thayn Company, just received the
following data associated with production of a...
Net Present Value Carsen Sorensen, controller of Thayn Company, just received the following data associated with...
Net Present Value Carsen Sorensen, controller of Thayn Company, just received the following data associated with production of a new product: Expected annual revenues: $720,000 Projected product life cycle: five years Equipment: $740,000 with a salvage value of $100,000 after five years Expected increase in working capital: $100,000 (recoverable at the end of five years) Annual cash operating expenses: estimated at $432,000 Required rate of return: 8 percent The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must...
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The management of Kunkel Company is considering the purchase of
a $32,000 machine that would reduce operating costs by $8,000 per
year. At the end of the machine’s five-year useful life, it will
have zero salvage value. The company’s required rate of return is
13%.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine
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Required:
1. Determine the net present value of the investment in the
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The management of Kunkel Company is considering the purchase of
a $32,000 machine that would reduce operating costs by $8,000 per
year. At the end of the machine’s five-year useful life, it will
have zero salvage value. The company’s required rate of return is
13%.
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine
the appropriate discount factor(s) using table.
Required:
1. Determine the net present value of the investment in the
machine.
2. What is the difference...
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