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Suppose a company has hired you to estimate the cash flows arising from a proposed capital project by replacing old equipment with a $0 market value and a book value of $6000, and you have been handed the relevant data below. The project being considered has a 5-year tax life, and at the end of year 5 the asset will be worthless (i.e. salvage value =0). The CFO suggests that you depreciate the asset by using the straight-line method over the 5 year life of the project. Revenues and other operating costs are as noted below, and will be constant over the period. Equipment cost: $150,000; Book value of old equipment: $6000 Delivery and installation cost of equipment and remove old equipment: $50,000; Straight-line depreciation rate: 20% (5-year); Sales revenue each year: $100,000 Operating costs (excluding depreciation): $30,000; Tax rate: 40% 10a. What are annual cash flows for the next five years? Hint: find CF0 to CF5 10b. Suppose CFO will borrow 50% of capital from a bank with 10% interest, and 50% of capital through equity with 22% of require rate of return. What is the cost of capital for this project? 10c. What is the net present value of this project and should you convince the CFO to accept or reject the new equipment? 10d. If the firm's CEO want to use IRR to value the project, will IRR has the same suggestion as NPV? (please find IRR, and explain what it means)
In Metro's current year cash flow statement, the reported net cash provided by operating activities under the indirect method should be:
What are deferral and accruals revenue cash of 18,000 on august1, 2007 for one year recorded translation with credit rent revenue. What should be December 31, 2007 adjusting entry
100 chairs were in process at the end of the year with a cost of $9,000. Each month, Ace paid $2,000 for secretarial services. Ace also paid sales commissions of $100 for each chair sold. (a) What was the cost per chair completed ? (b) Prepare a s..
Frank James, a highly competent employee of Brinkwater Sales Corporation, had been responsible for accounting-related matters for two decades. His devotion to the firm and his duties had always been exceptional, and over the years, he had been giv..
which accounting process is the recognition or non-recognition of business activities as accountable events?
Locate the annual financial statements of a publicly held company on the Internet. Review the balance sheet and the accompanying notes to the financial statements.
The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to:
What makes a CPA license valuable? a. Time, effort and education it takes to get the license. b. Continuing education after receiving the license. c. Monopoly on public accounting services.
Casso limited has an option to purchase new car for the use from a bank on loan for Rs. 100,000 with 16% interest payable annually and the principal is repayable in full at the end of four years.
Wecker Company's year-end unadjusted trial balance shows accounts receivable of $89,000, allowance for doubtful accounts of $500 (credit), and sales of $270,000. Uncollectibles are estimated to be 1.5% of accounts receivable.
At the beginning of the year, Wildcat Athletic had an inventory of $200,000. During the year, the company purchased goods costing $800,000. If Wildcat Athletic reported ending inventory of $300,000 and sales of $1,050,000, their cost of goods sold..
Evaluate the proposed change in credit standards and make a recommendation to the firm.
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