Expert answer:Need help with ACC 206: Accounting exercises

Answer & Explanation:ACC_Week_Five_Assignment_WP.doc Please use the following Present and Future Value Tables below as a resource to solving the assigned problems: Appendix_A_Future_Value_of_1.pdfAPPENDIX_C_Present_Value_of_1.pdfAPPENDIX_D_Present_Value_of_Ordinary_Annuity.pdf
acc_week_five_assignment_wp.doc

appendix_a_future_value_of_1.pdf

appendix_c_present_value_of_1.pdf

appendix_d_present_value_of_ordinary_annuity.pdf

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ACC206 Week Five Problems
Please complete the following 5 exercises below in either Excel or a word document (but must be single
document). You must show your work where appropriate (leaving the calculations within Excel cells is
acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.
1. Basic present value calculations
Calculate the present value of the following cash flows, rounding to the nearest dollar:
a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.
b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.
c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year
3. The company has a 10% rate of return.
d. An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4.
The company has a 16% rate of return.
2. Cash flow calculations and net present value
On January 2, 20X1, Bruce Greene invested $10,000 in the stock market and purchased 500 shares of Heartland
Development, Inc. Heartland paid cash dividends of $2.60 per share in 20X1 and 20X2; the dividend was raised
to $3.10 per share in 20X3. On December 31, 20X3, Greene sold his holdings and generated proceeds of $13,000.
Greene uses the net-present- value method and desires a 16% return on investments.
a. Prepare a chronological list of the investment’s cash flows. Note: Greene is entitled to the 20X3 dividend.
b. Compute the investment’s net present value, rounding calculations to the nearest dollar.
c. Given the results of part (b), should Greene have acquired the Heartland stock? Briefly explain.
3. Straightforward net present value and internal rate of return
The City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost has been
calculated as follows:
Purchase cost: $450 per acre
Site preparation: $175,000
The site can be used for 20 years before it reaches capacity. Bedford, which shares a facility in Bath Township
with other municipalities, estimates that the new location will save $40,000 in annual operating costs.
a. Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the net-presentvalue method to determine your answer.
4. Straightforward net-present-value and payback computations
STL Entertainment is considering the acquisition of a sight-seeing boat for summer tours along the Mississippi
River. The following information is available:
Cost of boat
$500,000
Service life
10 summer seasons
Disposal value at the end of 10 seasons
$100,000
Capacity per trip
300 passengers
Fixed operating costs per season (including straight-line
depreciation)
$160,000
Variable operating costs per trip
$1,000
Ticket price
$5 per passenger
All operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of
the country, management anticipates that each trip will be sold out and that 120,000 passengers will be carried
each season. Ignore income taxes.
Instructions:
By using the net-present-value method, determine whether STL Entertainment should acquire the boat. Assume a
14% desired return on all investments- round calculations to the nearest dollar.
5. Equipment replacement decision
Columbia Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment
is expected to provide six more years of service if $8,700 of major repairs are performed in two years. Annual
cash operating costs total $27,200. Columbia can sell the equipment now for $36,000; the estimated residual value
in six years is $5,000.
New equipment is available that will reduce annual cash operating costs to $21,000. The equipment costs
$103,000, has a service life of six years, and has an estimated residual value of $13,000. Company sales will total
$430,000 per year with either the existing or the new equipment. Columbia has a minimum desired return of 12%
and depreciates all equipment by the straight-line method.
Instructions:
a. By using the net-present-value method, determine whether Columbia should keep its present equipment
or acquire the new equipment. Round all calculations to the nearest dollar, and ignore income taxes.
b. Columbia’s management feels that the time value of money should be considered in all long-term
decisions. Briefly discuss the rationale that underlies management’s belief.
Appendix A
Future value interest factor of $1 per period at i% for n periods, FVIF(i,n).
Periods
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
35
40
50
RATE PER PERIOD
1%
1.010
1.020
1.030
1.041
1.051
1.062
1.072
1.083
1.094
1.105
1.116
1.127
1.138
1.149
1.161
1.173
1.184
1.196
1.208
1.220
1.282
1.348
1.417
1.489
1.645
2%
1.020
1.040
1.061
1.082
1.104
1.126
1.149
1.172
1.195
1.219
1.243
1.268
1.294
1.319
1.346
1.373
1.400
1.428
1.457
1.486
1.641
1.811
2.000
2.208
2.692
3%
1.030
1.061
1.093
1.126
1.159
1.194
1.230
1.267
1.305
1.344
1.384
1.426
1.469
1.513
1.558
1.605
1.653
1.702
1.754
1.806
2.094
2.427
2.814
3.262
4.384
4%
1.040
1.082
1.125
1.170
1.217
1.265
1.316
1.369
1.423
1.480
1.539
1.601
1.665
1.732
1.801
1.873
1.948
2.026
2.107
2.191
2.666
3.243
3.946
4.801
7.107
5%
1.050
1.103
1.158
1.216
1.276
1.340
1.407
1.477
1.551
1.629
1.710
1.796
1.886
1.980
2.079
2.183
2.292
2.407
2.527
2.653
3.386
4.322
5.516
7.040
11.467
6%
1.060
1.124
1.191
1.262
1.338
1.419
1.504
1.594
1.689
1.791
1.898
2.012
2.133
2.261
2.397
2.540
2.693
2.854
3.026
3.207
4.292
5.743
7.686
10.286
18.420
7%
1.070
1.145
1.225
1.311
1.403
1.501
1.606
1.718
1.838
1.967
2.105
2.252
2.410
2.579
2.759
2.952
3.159
3.380
3.617
3.870
5.427
7.612
10.677
14.974
29.457
8%
1.080
1.166
1.260
1.360
1.469
1.587
1.714
1.851
1.999
2.159
2.332
2.518
2.720
2.937
3.172
3.426
3.700
3.996
4.316
4.661
6.848
10.063
14.785
21.725
46.902
9%
1.090
1.188
1.295
1.412
1.539
1.677
1.828
1.993
2.172
2.367
2.580
2.813
3.066
3.342
3.642
3.970
4.328
4.717
5.142
5.604
8.623
13.268
20.414
31.409
74.358
10%
1.100
1.210
1.331
1.464
1.611
1.772
1.949
2.144
2.358
2.594
2.853
3.138
3.452
3.797
4.177
4.595
5.054
5.560
6.116
6.727
10.835
17.449
28.102
45.259
117.391
Future value interest factor of $1 per period at i% for n periods, FVIF(i,n).
Periods
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
35
40
50
RATE PER PERIOD
11%
1.110
1.232
1.368
1.518
1.685
1.870
2.076
2.305
2.558
2.839
3.152
3.498
3.883
4.310
4.785
5.311
5.895
6.544
7.263
8.062
13.585
22.892
38.575
65.001
184.565
12%
1.120
1.254
1.405
1.574
1.762
1.974
2.211
2.476
2.773
3.106
3.479
3.896
4.363
4.887
5.474
6.130
6.866
7.690
8.613
9.646
17.000
29.960
52.800
93.051
289.002
13%
1.130
1.277
1.443
1.630
1.842
2.082
2.353
2.658
3.004
3.395
3.836
4.335
4.898
5.535
6.254
7.067
7.986
9.024
10.197
11.523
21.231
39.116
72.069
132.782
450.736
14%
1.140
1.300
1.482
1.689
1.925
2.195
2.502
2.853
3.252
3.707
4.226
4.818
5.492
6.261
7.138
8.137
9.276
10.575
12.056
13.743
26.462
50.950
98.100
188.884
700.233
15%
1.150
1.323
1.521
1.749
2.011
2.313
2.660
3.059
3.518
4.046
4.652
5.350
6.153
7.076
8.137
9.358
10.761
12.375
14.232
16.367
32.919
66.212
133.176
267.864
1,083.657
16%
1.160
1.346
1.561
1.811
2.100
2.436
2.826
3.278
3.803
4.411
5.117
5.936
6.886
7.988
9.266
10.748
12.468
14.463
16.777
19.461
40.874
85.850
180.314
378.721
1,670.704
17%
1.170
1.369
1.602
1.874
2.192
2.565
3.001
3.511
4.108
4.807
5.624
6.580
7.699
9.007
10.539
12.330
14.426
16.879
19.748
23.106
50.658
111.065
243.503
533.869
2,566.215
18%
1.180
1.392
1.643
1.939
2.288
2.700
3.185
3.759
4.435
5.234
6.176
7.288
8.599
10.147
11.974
14.129
16.672
19.673
23.214
27.393
62.669
143.371
327.997
750.378
3,927.357
19%
1.190
1.416
1.685
2.005
2.386
2.840
3.379
4.021
4.785
5.695
6.777
8.064
9.596
11.420
13.590
16.172
19.244
22.901
27.252
32.429
77.388
184.675
440.701
1,051.668
5,988.914
20%
1.200
1.440
1.728
2.074
2.488
2.986
3.583
4.300
5.160
6.192
7.430
8.916
10.699
12.839
15.407
18.488
22.186
26.623
31.948
38.338
95.396
237.376
590.668
1,469.772
9,100.438
Appendix C
Present value interest factor of $1 per period at i% for n periods, PVIF(i,n).
Periods
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
35
40
50
RATE PER PERIOD
1%
0.990
0.980
0.971
0.961
0.951
0.942
0.933
0.923
0.914
0.905
0.896
0.887
0.879
0.870
0.861
0.853
0.844
0.836
0.828
0.820
0.780
0.742
0.706
0.672
0.608
2%
0.980
0.961
0.942
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.804
0.788
0.773
0.758
0.743
0.728
0.714
0.700
0.686
0.673
0.610
0.552
0.500
0.453
0.372
3%
0.971
0.943
0.915
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.722
0.701
0.681
0.661
0.642
0.623
0.605
0.587
0.570
0.554
0.478
0.412
0.355
0.307
0.228
4%
0.962
0.925
0.889
0.855
0.822
0.790
0.760
0.731
0.703
0.676
0.650
0.625
0.601
0.577
0.555
0.534
0.513
0.494
0.475
0.456
0.375
0.308
0.253
0.208
0.141
5%
0.952
0.907
0.864
0.823
0.784
0.746
0.711
0.677
0.645
0.614
0.585
0.557
0.530
0.505
0.481
0.458
0.436
0.416
0.396
0.377
0.295
0.231
0.181
0.142
0.087
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.527
0.497
0.469
0.442
0.417
0.394
0.371
0.350
0.331
0.312
0.233
0.174
0.130
0.097
0.054
7%
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.475
0.444
0.415
0.388
0.362
0.339
0.317
0.296
0.277
0.258
0.184
0.131
0.094
0.067
0.034
8%
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
0.429
0.397
0.368
0.340
0.315
0.292
0.270
0.250
0.232
0.215
0.146
0.099
0.068
0.046
0.021
9%
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.388
0.356
0.326
0.299
0.275
0.252
0.231
0.212
0.194
0.178
0.116
0.075
0.049
0.032
0.013
10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
0.350
0.319
0.290
0.263
0.239
0.218
0.198
0.180
0.164
0.149
0.092
0.057
0.036
0.022
0.009
11%
0.901
0.812
0.731
0.659
0.593
0.535
0.482
0.434
0.391
0.352
0.317
0.286
0.258
0.232
0.209
0.188
0.170
0.153
0.138
0.124
0.074
0.044
0.026
0.015
0.005
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.287
0.257
0.229
0.205
0.183
0.163
0.146
0.130
0.116
0.104
0.059
0.033
0.019
0.011
0.003
13%
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
0.261
0.231
0.204
0.181
0.160
0.141
0.125
0.111
0.098
0.087
0.047
0.026
0.014
0.008
0.002
14%
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
0.237
0.208
0.182
0.160
0.140
0.123
0.108
0.095
0.083
0.073
0.038
0.020
0.010
0.005
0.001
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
0.215
0.187
0.163
0.141
0.123
0.107
0.093
0.081
0.070
0.061
0.030
0.015
0.008
0.004
0.001
16%
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227
0.195
0.168
0.145
0.125
0.108
0.093
0.080
0.069
0.060
0.051
0.024
0.012
0.006
0.003
0.001
17%
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
0.178
0.152
0.130
0.111
0.095
0.081
0.069
0.059
0.051
0.043
0.020
0.009
0.004
0.002
0.000
18%
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
0.162
0.137
0.116
0.099
0.084
0.071
0.060
0.051
0.043
0.037
0.016
0.007
0.003
0.001
0.000
19%
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176
0.148
0.124
0.104
0.088
0.074
0.062
0.052
0.044
0.037
0.031
0.013
0.005
0.002
0.001
0.000
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
0.054
0.045
0.038
0.031
0.026
0.010
0.004
0.002
0.001
0.000
Appendix D
Present value interest factor of an (ordinary) annuity of $1 per period at i% for n periods, PVIFA(i,n).
Periods
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
35
40
50
Rate per period
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
0.990
0.980
0.971
0.962
0.952
0.943
0.935
0.926
0.917
0.909
0.901
0.893
0.885
0.877
0.870
0.862
0.855
0.847
0.840
0.833
1.970
1.942
1.913
1.886
1.859
1.833
1.808
1.783
1.759
1.736
1.713
1.690
1.668
1.647
1.626
1.605
1.585
1.566
1.547
1.528
2.941
2.884
2.829
2.775
2.723
2.673
2.624
2.577
2.531
2.487
2.444
2.402
2.361
2.322
2.283
2.246
2.210
2.174
2.140
2.106
3.902
3.808
3.717
3.630
3.546
3.465
3.387
3.312
3.240
3.170
3.102
3.037
2.974
2.914
2.855
2.798
2.743
2.690
2.639
2.589
4.853
4.713
4.580
4.452
4.329
4.212
4.100
3.993
3.890
3.791
3.696
3.605
3.517
3.433
3.352
3.274
3.199
3.127
3.058
2.991
5.795
5.601
5.417
5.242
5.076
4.917
4.767
4.623
4.486
4.355
4.231
4.111
3.998
3.889
3.784
3.685
3.589
3.498
3.410
3.326
6.728
6.472
6.230
6.002
5.786
5.582
5.389
5.206
5.033
4.868
4.712
4.564
4.423
4.288
4.160
4.039
3.922
3.812
3.706
3.605
7.652
7.325
7.020
6.733
6.463
6.210
5.971
5.747
5.535
5.335
5.146
4.968
4.799
4.639
4.487
4.344
4.207
4.078
3.954
3.837
8.566
8.162
7.786
7.435
7.108
6.802
6.515
6.247
5.995
5.759
5.537
5.328
5.132
4.946
4.772
4.607
4.451
4.303
4.163
4.031
9.471
8.983
8.530
8.111
7.722
7.360
7.024
6.710
6.418
6.145
5.889
5.650
5.426
5.216
5.019
4.833
4.659
4.494
4.339
4.192
10.368
9.787
9.253
8.760
8.306
7.887
7.499
7.139
6.805
6.495
6.207
5.938
5.687
5.453
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4.836
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11.255
10.575
9.954
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6.814
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4.439
12.134
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5.583
5.342
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13.004
12.106
11.296
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10.380
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6.811
6.462
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6.974
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6.246
5.880
5.554
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4.999
…
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