DETAILED AND STEP BY STEP SOLUTIONS FOR 11 AND 12 Use the following information
ID: 2571887 • Letter: D
Question
DETAILED AND STEP BY STEP SOLUTIONS FOR 11 AND 12
Use the following information for the next two questions (Present value tables are needed.) Miami Marine Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two-the B14 Model and the F54 Model. Financial data about the two choices follows B14 Model F54 Model Investment Useful life (years) Estimated annual net cash inflows for useful life Residual value Depreciation method Required rate of return 320,0002 240,000 $ 40,000 $ 10,000 Straight-line Straight-line 10% $ 75,000 $ 30,000 14% 11. What is the net present value of the B14 Model? A. $17,395 positive B. $21,930 negative C. $38,455 positive D. $358,455 positive 12. What is the net present value of the F54 Model? A. $21,930 negative B. $38,455 positive C. $178,070 positive D. $218,070 positiveExplanation / Answer
Q 11. Answer is C. $ 38,455 positive
Q12. Answer is A. $ 21,930 negative
The explanation is as follows:
B14 Model: Present value of cash inflows (75000 * Annuity factor of 14% at 8 years i.e. 4.639) 347925 Add: Presetn value of Salvage value at the end of 8th year ($30,000*PV factor of 8th year i.e. 0.351) 10530 Total present value of cash inflows 358455 Less: Initial outflows 320000 Net present value 38455 F54 Model Present value of cash inflows (40000 * Annuity factor of 10% at 8 years i.e. 5.335) 213400 Add: Presetn value of Salvage value at the end of 8th year ($10,000*PV factor of 8th year i.e.0.467) 4670 Total present value of cash inflows 218070 Less: Initial outflows 240000 Net present value -21930Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.