1. What is the internal rate of return on an investment with the following cash
ID: 2663387 • Letter: 1
Question
1. What is the internal rate of return on an investment with the following cash flowYear cash folw
0 -123,400
1 36,200
2 54,800
3 48,100
2. Bardley Snapp has deposted 7,000 in a guaranteed investment account with a promised rate of 6% compounded annually. He plans to leave it there for 4 year when he will make a down payment on a car after graduation. How much of a down payment will he be able to make?
4 .
3. A project will increase sales by 60,000 and cash expenses by $ 51,000. The project will cost 40,000 and will be depreciated using straight-line depreciation to a zero book value over the 4 year life of the project. The company has a marginal tax rate of 35%. What is the operating cash flow of the project using the tax shield approach?
4.
5. Wilson meat has computed its fixed cost to be .60 for every pound of meat it sells given an average daily sales level of 500 pounds. It charges 3.89 per pound of top-grade grond beef. The variable cost per pound is 2.99. what is the contribution margin per pound of ground beef sold?
Explanation / Answer
1. What is the internal rate of return on an investment with the following cash flow Year cash flow Present Value Present Value Present Value at 6 % at 8% at 10% 1 36,200 .94340 34,151.08 .92593 33,518.67 .90909 32,909.06 2 54,800 .89000 48,772.00 .85734 46,982.23 .82645 45,289.46 3 48,100 .83962 40,385.72 .79383 38,183.22 .75132 36,138.49 Total 123,308.80 118,684.12 114,337.01 Less: Initial Investment 123,400.00 Therefore Internal rate of return is 6%. 2. Bardley Snapp has deposited 7,000 in a guaranteed investment account with a promised rate of 6% compounded annually. He plans to leave it there for 4 year when he will make a down payment on a car after graduation. How much of a down payment will he be able to make? Future value of 1 at 6% for 4 years = 1.26248 Future value of 7,000 = 7,000 x 1.26248 = 8,837.36 3. A project will increase sales by 60,000 and cash expenses by $ 51,000. The project will cost 40,000 and will be depreciated using straight-line depreciation to a zero book value over the 4 year life of the project. The company has a marginal tax rate of 35%. What is the operating cash flow of the project using the tax shield approach? Increase in sales 60,000 Less: Expense 51,000 Increase cash flow 9,000 Less: Income tax 3,150 Net Cash flow 5,850 5. Wilson meat has computed its fixed cost to be .60 for every pound of meat it sells given an average daily sales level of 500 pounds. It charges 3.89 per pound of top-grade grond beef. The variable cost per pound is 2.99. what is the contribution margin per pound of ground beef sold? Selling price = 3.89 per pound Variable cost = 2.99 per pound Contribution Margin = 0.90 per pound
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