Net Present Value/Present Value Index

The administration team at Savage Corporation is evaluating brace opinion important cannonade opportunities. The highest opinion, modernizing the aggregation’s exhibit implementry, consumes $45,000. Administration estimates the modernization purpose conciliate classify annual alallurement specie outflows by $12,500 per year restraint the proximate five years. The succor opinion, purchasing a strange implement, consumes $56,500. The strange implement is expected to recognize a five-year beneficonsultation career and a $4,000 salvage appraise. Administration estimates the strange implement conciliate breed specie inflows of $15,000 per year.
Savage’s consume of important is 10%.

a. Detail the exhibit appraise of the specie course savings expected from the modernization program. Using the premise from the Postscript on page 1169 of our quotation 15000*3. 790787 = 47,385, which should be the PV specie course savings expected from the highest non-interference of the modernization program.
b. Detail the alallurement exhibit appraise of the modernization purpose. I like the NPV of the 1st purpose is fitted by subtracting exhibit implementry, consumes $45,000 from the appearance aggravatehead which equals 2,385. 00
c. Detail the alallurement exhibit appraise of investing in the strange implement. This is robust by valuing advenient specie courses.
Using the corresponding postscript in board 2 premise, annual specie course of 15,000 * 3. 790787 =56862. 00
Salvage consume of 4,000 * 0. 620921 (board 3 on page 523) = 2484. 00
Total=59,346. 00 close the consume of implementry 56,500 = 2486. 00 as the NPV
d. Use a exhibit appraise renunciation to detail which cannonade opinion conciliate acquiesce a eminent reprimand of recompense.
PI= $15,000*0. 620921/56,500 = 0. 16
This cannonade is referable accepboard owing it has a PI of close than 1. 0 hence the modernization purpose or the highest opinion conciliate recognize a eminent reprimand of recompense.
Exercise 24-4A
Determining the exhibit appraise of an annuity The dean of the Teach of Social Science is unmanageable to flow whether to restraintfeiture a vision implement to assign in the lobby of the edifice. The implement would gather to scholar retirement, except the dean feels compelled to merit an 8 percent recompense on the cannonade of funds. Estimates of specie inflows from vision implements that recognize been assignd in other university edifices manifest that the vision implement would probably consequence incremental specie inflows of closely $8,000 per year.
The implement is expected to recognize a three-year beneficonsultation career with a referablehing salvage appraise.
a. Use Exhibit Appraise Board 1 in Postscript A to detail the zenith aggregate of specie the dean should be conciliateing to firm restraint a vision implement. Years 1 – 3; where N = 1 r at 8%, N =2, [email protected] 8%, N = 3 r @ 8% 8000*. 925926 = 7,407. 41 8000*. 857339 = 6,858. 71 8000*. 793832 = 6,350. 66 Exhibit Appraise / Ordinary Annuity = ($) 20,617. 00 Exhibit Appraise / Annuity-Due = ($) 22,266
b. Use Exhibit Appraise Board 2 in Postscript A to detail the zenith aggregate of specie the dean should be conciliateing to firm restraint a vision implement.
Established on board 2 in postscript a, the zenith aggregate of specie the Dean should be conciliateing to firm restraint a vision implement is ($) 20,617. 00
c. Explain the compound or bankruptcy of compound in the acceptances to Insist-uponments a & b. The compound in the acceptances is so vision that board 2 in postscript A appears to be the sum of the PV restraint each of the 3 years in board 1.
Exercise 24-8A
Determining the inside reprimand of recompense Medina Manufacturing Aggregation has an opening to restraintfeiture some technologically recent equipment that conciliate classify the aggregation’s specie outcourse restraint unoccupied expenses by $1,280,000 per year.
The consume of the equipment is $6,186,530. 56. Medina expects it to recognize a 10-year beneficonsultation career and a referablehing salvage appraise. The aggregation has customary an cannonade opening hurdle reprimand of 15 percent and uses the straight-line manner restraint slander.
a. Calculate the inside reprimand of recompense of the cannonade opening.
YearExplanationSpecie CourseDiscount Factor 1 (hurdle reprimand of 15)DiscountDiscount Factor 2Specie Course @Discount 0
Consume to restraintfeiture some technologically recent equipment(6,186,530. 56)(6,186,530. 56) 1,280,0005. 01877$6,424,0264. 6565,959,680
Alallurement exhibit appraise$$237,495($226,851)
b. Manifest whether the cannonade opening should be original. The Inside Reprimand of Recompense appears to be eminent than the customary cannonade opening hurdle reprimand of 15 percent hence it would be a amiable proposal to recognize this cannonade opening.
Exercise 24-6A
Determining alallurement exhibit appraise Travis Vintor is seeking part-time tenure timeliness he attends teach. He is regarding purchasing technical equipment that conciliate empower him to initiate a weak luxuriance benefits aggregation that conciliate adduce tutorial benefits aggravate the Internet.
Travis expects ask-coercion restraint the benefit to amplify speedily in the highest brace years of action as customers lmerit about the availability of Interalallurement coadjutorship. Thereafter, he expects ask-coercion to stabilize. The coercionthcoming board exhibits the expected specie courses.
Year of Action Specie Incourse Specie Outcourse 2006 $5,400 $3,600 2007 7,800 4,800 2008 8,400 5,040 2009 8,400 5,040
In gatherition to these specie courses, Mr. Vintor expects to firm $8,400 restraint the equipment. He besides expects to firm $1,440 restraint a elder aggravatehaul and updating of the equipment at the object of the succor year of action. The equipment is expected to recognize a $600 salvage appraise and a filthy-year beneficonsultation career. Mr. Vintor desires to merit a reprimand of recompense of 8 percent.
Year ExplanationinflowsoutflowsAlallurement Discount @8%Discounted 2006 riseConsume of equipment $ – $ 8,400 $ (8,400)1 $ (8,400) 2006Operational specie courses $ 5,400 $ 3,600 $ 1,800 0. 925926 $ 1,667 007Operational specie courses $ 7,800 $ 4,800 $ 3,000 0. 857339 $ 2,572 2007Elder aggravatehaul $ – $ 1,440 $ (1,440)0. 857339 $ (1,235) 2008Operational specie courses $ 8,400 $ 5,040 $ 3,360 0. 793832 $ 2,667 2009Operational specie courses $ 8,400 $ 5,040 $ 3,360 0. 73503 $ 2,470 2009Salvage appraise of equipment $ 600 $ – $ 600 0. 73503 $ 441 Alallurement exhibit appraise of Cannonade Opening $ 182
(Round computations to the rectilinear sound penny. )
a. Calculate the alallurement exhibit appraise of the cannonade opening.
b. Manifest whether the cannonade opening is expected to merit a recompense that is aggravatehead or underneath the desired reprimand of recompense and whether it should be original. General administration with NPV is that if NPV of a prospective purpose is independent, it should be original. However, if NPV is denying it should referable be original. The calculations, If set-right exhibit a independent NPV hence the cannonade opening should be original. Problem 19-24A Assessing concurrent changes in CVP relationships Green Shades Inc. (GSI) sells hammocks; capricious consumes are $75 each, and the hammocks are sold restraint $125 each.
GSI meets $250,000 of agricultural unoccupied expenses annually.
a. Detail the sales dimensions in parts and dollars insist-upond to arrive-at a $50,000 gain. Sales = Donation Brink per Part = Enrichments per Part – Capricious Expenses per Part = 250,000 + 50,000/125 – 75= 6,000 in parts Verify your acceptance by preparing an returnss assertion using the donation brink restraintmat. Break-even Sales Dollars = Sales Value per Part ? Break-even Sales Parts Break-even Top in Sales Dollars = 125 * 6000 = 750,000 Returnss Assertion Green Shades Inc. As of October 17, 2012 Sales750,000 Capricious Consumes(450,000) Donation Brink300, 000 Agricultural Consumes250,000 Alallurement Returnss 50,000
b. GSI is regarding implementing a kind correction program. The program conciliate insist-upon a $10 growth in the capricious consume per part. To impart its customers of the kind corrections, the aggregation plans to spobject an gatheritional $20,000 restraint advertising. Splendid that the correction program conciliate growth sales to a raze that is 3,000 parts aggravatehead the aggregate computed in Insist-uponment a, should GSI returns with plans to amelioblame consequence kind? Support your acceptance by preparing a budgeted returnss assertion.
Proceeds Assertion Green Shades Inc. As of October 17, 2012
Sales1,125,000 Capricious Consumes(765,000) Donation Brink360, 000 Agricultural Consumes(270,000) Alallurement Returnss 90,000 The aggregation might scantiness to ponder going restraintward vision the look of gainability.
c. Detail the strange break-even top in parts and sales dollars as courteous as the brink of insurance percentage, splendid that the kind correction program is implemented. Agricultural Consumes/Donation Brink per Part = 270,000/ 125-85 = 6750 Break-even Sales Dollars = Sales Value per Part ? Break-even Sales Parts Break-even Top in Sales Dollars = 125 * 6750= 843,750 Brink of InsuranceMeasured in PartsMeasured in Dollars
Sales @ Budged 90001125000
Break Even6750843,750
Margin2250281,250 281250/1125000 =. 25 or 25%
Problem 18-17B
Regularity consume scheme consume of consequenceion fame At the rise of 2004, Dozier Aggregation had 1,800 parts of consequence in its remainder in regularity catalogue, and it initiateed 19,200 gatheritional parts of consequence during the year. At the object of the year, 6,000 parts of consequence were in the remainder in regularity catalogue. The objecting remainder in regularity catalogue was estimated to be 50 percent thorough. The consume of remainder in regularity catalogue at the rise of the end was $9,000, and $108,000 of consequence consumes were gathered during the end.
Prepare a consume of consequenceion fame showing the coercionthcoming.
a. The sum of equiponderant parts of consequenceion. Equiponderant parts of consequenceion ACTUALEquiponderant Rise 1,800 Gatheritional parts of consequence19,200 Aggregate21,000 Objecting6,000 @50%3,000 To be transferred15,000 @100%15,000 Aggregate21,00018,000
b. The consequence consume per equiponderant part. Rise is 9,000 gathered to consequenceion of 108,000 to aggregate 117,000
c. The aggregate consume wholeocated among the objecting Remainder in Regularity Catalogue and Artistic Amiables Catalogue accounts.
117,000/18,000 = 6. 50 consume per part
15000*6. 50 = 97,500 artistic amiables 000 of equiponderant parts aggravatehead*6. 50= 19,500
Aggregate 117,000
Problem 15-17A Identifying consume bearing
Identify the coercionthcoming consumes as agricultural or capricious. Consumes akin to flatten errs among San Diego, California, and Orlando, Florida, ensue. Pilots are hired on a per-err premise.
a. Pilots’ salaries are not-absolute to the sum of errs coursen. capricious
b. Slander is not-absolute to the sum of flattens in benefit. capricious
c. Consume of refreshments not-absolute to the sum of passengers. capricious
d. Pilots’ salaries are not-absolute to the sum of passengers on a point err. ixed
e. Consume of a means-of-support cohibit not-absolute to the sum of passengers on a point err. agricultural f. Fuel consumes not-absolute to the sum of errs. capricious National Union Bank operates diverse bough offices in grocery stores. Each bough employs a overseer and brace tellers.
g. Tellers’ salaries are not-absolute to the sum of tellers in a point bounds. capricious h. Supplies consume not-absolute to the sum of transactions regularityed in a point bough. capricious
i. Tellers’ salaries are not-absolute to the sum of customers served at a point bough. Agricultural
j. Overseers’ salaries not-absolute to the sum of boughes operated. Agricultural
k. Overseers’ salaries are not-absolute to the sum of customers served in a point bough. Agricultural
l. Facility rental consumes are not-absolute to the extent of customer deposits. Agricultural Consumes akin to unoccupied a fast-food restaurant ensue.
m. Slander of equipment not-absolute to the sum of restaurants. capricious
n. Edifice rental consume not-absolute to the sum of customers served in a point restaurant. Agricultural
o. Manager’s compensation of a point restaurant not-absolute to the sum of employees. Agricultural
p. Food consume not-absolute to the sum of customers. capricious
q. Utility consume not-absolute to the sum of restaurants in action. capricious
r. The aggregation president’s compensation is not-absolute to the sum of restaurants in action. Agricultural
s. Land consumes not-absolute to the sum of hamburgers sold at a point restaurant. Agricultural
t. Slander of equipment not-absolute to the sum of customers served at a point restaurant. agricultural
Exercise 15-6B
Agricultural versus capricious consume bearing Professional Chairs Corporation consequences ergonomically prepared chairs favored by architects.
The aggregation normally consequences and sells from 5,000 to 8,000 chairs per year. The coercionthcoming consume premise wholeot to multitudinous consequenceion zeal razes. Sum of Chairs5,0006,0007,0008,000 Aggregate consumes meetred Agricultural$ 84,000 Capricious 60,000 Aggregate consumes$144,000 Per part chair consume Agricultural$16. 80 Capricious12. 00 Aggregate consume per chair$28. 80
a. Thorough the previous board by supply in the waste aggregates restraint the razes of zeal shown in the highest degree of the board.
b. Explain why the aggregate consume per chair decreases as the sum of chairs growths.
Exercise 15-12B
Effect of consume edifice on purposeed gains Logan and Martin emulate in the corresponding trade. The coercionthcoming budgeted returnss assertions illustreprimand their consume edifices.
Proceeds Assertions Aggregation Logan Martin Sum of Customers (a) 160 160 Sales Enrichment (n x $75) $12,000 $ 12,000 Capricious Consume (n x $0) 12,800 Donation Brink 12,000 (800) Agricultural Consume (6,400) 0 Alallurement Returnss (Loss) $ 5,600 $ (800)
a. Assume that Logan can wholeurement whole 80 customers loose from Martin by lurid its sales value to $75 per customer.
Reconstruct Logan’s returnss assertion established on 160 customers.
b. Assume that Martin can wholeurement whole 80 customers loose from Logan by lurid its sales value to $75 per customer. Reconstruct Martin’s returnss assertion established on 160 customers.
c. Why does the value-cutting temporization growth Logan’s gains except remainder in a alallurement detriment restraint Martin? This is so in that when sales to 160 clients at 75 (12,000), further enrichment is consequenced as irrelative to sales to a closeer aggregate (80 clients) at 125 (10,000). Agricultural consumes add to Logans growths in sales enrichment.
Exercise 16-9A
Allocating aggravatehead consumes to accomplish smoothing Mimosa Corporation expects to meet contingent aggravatehead consumes of $72,000 per month and straightforward manufacturing consumes of $11 per part. The expected consequenceion zeal restraint the highest filthy months of 2007 is as ensues.
January February March April
Estimated consequenceion in parts 4,000 7,000 3,000 6,000
a. Calculate a prerobust aggravatehead reprimand established on the sum of parts of consequence expected to be made during the highest filthy months of the year.
MonthJanuaryFebruaryMarchApril aggregate
Estimated consequenceion in parts 400070003000600020000 72000*4/20,000=14. 40 per part
b. Wholeocate aggravatehead consumes to each month using the aggravatehead reprimand computed in Insist-uponment a.
Rate14. 4014. 4014. 4014. 40
c. Calculate the aggregate consume per part restraint each month using the aggravatehead wholeocated in Insist-uponment b.
MonthUnits (A)Over (B)Consume (A*11)TotalConsume Per Part (d/a)
Jan4000576004400010160025. 40
Feb70001008007700017780025. 40
March300043200330007620025. 40
April6000864006600015240025. 40

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