managerial accounting i m beyond lost 423766
Aug 29, 2021 | Uncategorized
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On January 2, Fred Critchfield paid $19,000 for 930 shares of the common stock of Acme Company. Mr. Critchfield received an $0.79 per share dividend on the stock at the end of each year for six years. At the end of six years, he sold the stock for $22,000. Mr. Critchfield has a goal of earning a minimum return of 17% on all of his investments. (Ignore income taxes.)
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| Click here to view Exhibit 11B 1 andExhibit 11B 2, to determine the appropriate discount factor(s) using tables. |
| a. |
Determine the net present value. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)
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| b. |
Did Mr. Critchfield earn a 17% return on the stock? |
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No |
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Yes
2.)
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Wriston Company has $220,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:
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A |
B |
| Cost of equipment required |
$ |
220,000 |
$ |
0 |
| Working capital investment required |
$ |
0 |
$ |
220,000 |
| Annual cash inflows |
$ |
95,000 |
$ |
85,000 |
| Salvage value of equipment in four years |
$ |
22,000 |
$ |
0 |
| Life of the project |
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4 years |
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4 years |
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The working capital needed for project B will be released for investment elsewhere at the end of four years. Wriston Company uses a 18% discount rate. (Ignore income taxes.)
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Click here to view Exhibit 11B 1 andExhibit 11B 2, to determine the appropriate discount factor(s) using tables.
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| a. |
Calculate net present value for each project. (Negative amounts should be indicated by a minus sign.Leave no cells blank be certain to enter “0” wherever required. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)
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Net Present Value |
| Project A |
$ |
| Project B |
$ |
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| b. |
Which investment alternative (if either) would you recommend that the company accept? |
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