Compute the present value, Financial Accounting

Q. Compute the present value?

The offer for the manufacturing rights is for a ten-year period.

Annual after-tax cash flow after Year 4 = $660000

Present value of this cash flow over six years at 12% = 660000 × 4·111 = $2713260

Present value of post Year 4 cash flows = 2713260 × 0·636 = $1725633

746_Compute the present value.png

This net present value is equal to an annual benefit of 534383/ 5·650 = $94581

The after-tax value of the offer of $300,000 per year for 10 years = 300000 × 0·75 = $225000

In the lack of other information the offer should be accepted.

An alternative approach is to compute the present value of the offer

300000 × 0·75 × 5·650 = $1271250

Ever since this is greater than the NPV of investing by $736867 the offer should be accepted.

Posted Date: 7/11/2013 7:43:23 AM | Location : United States







Related Discussions:- Compute the present value, Assignment Help, Ask Question on Compute the present value, Get Answer, Expert's Help, Compute the present value Discussions

Write discussion on Compute the present value
Your posts are moderated
Related Questions
This lab assignment will correspond to developing a cash flow budget with an operating loan. There is on lab exercise listed below. Additionally, there are two assignment questions

Partners F and G receive an interest allowance of $10,000 and $15,000, respectively, and divide the remaining profits and losses in a 3:1 ratio. If the company sustained a net loss

The market value of a bond is equal to: The present value of all future cash payments provided by a bond The present value of all future interest payments provided by a bond The pr

An introduction to the company, which focuses on the context in which the company operates: • Ownership, development and location; • Resources, processes and employment; •

Tony is a salesperson at a local auto showroom. He asks you to assist him in developing a tool for calculating purchase and lease payments. He has already developed a draft of the

Identify the various prices for job To identify the various prices for job, there are numerous points to be considered, including: ?How many garages shall we visit? ?What

Looking for Income Statement and Balance Sheet for the Better USA, Inc. company for 2010 and 2011 There are two sets of numbers, after each category. The first will represent 2010

Peer Review - Process by which an accounting firm's practice is evaluated for compliance with professional standards. Objective is achieved through the performance of an independen

Ask questSarah is the sole distributor agent in her area for Holmes Kitchen Tiles. Sarah purchases the titles at a trade discount and annually in May receives an agency commission

Company A(lessee) will rent inventory for you for 3 years rather than buying it for the regular price of $240,000. Normally these units, which cost us $120,000 to produce, will las