9. - Derrick Iverson is a divisional manager for Holston Company. His annual pay
ID: 2484468 • Letter: 9
Question
9.- Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $3,080,000 investment in equipment with a useful life of five years and no salvage value. Holston Company’s discount rate is 17%. The project would provide net operating income each year for five years as follows:
10.-
The Cambro Foundation, a nonprofit organization, is planning to invest $174,843 in a project that will last for three years. The project will produce net cash inflows as follows:
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.
Required:
Assuming that the project will yield exactly a 8% rate of return, what is the expected net cash inflow for Year 3? (Round discount factor(s) to 3 decimal places.)
9.- Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $3,080,000 investment in equipment with a useful life of five years and no salvage value. Holston Company’s discount rate is 17%. The project would provide net operating income each year for five years as follows:
Explanation / Answer
1 Year Cash Flow PV Factor PV 0 (174,843) 1.0000 (174,843.00) 1 74,000 0.9259 68,518.52 2 87,000 0.8573 74,588.48 Required PV of Year 3 31,736.00 Divided by PV Factor (Year 3) 0.7938 Expected Cash Flow for Year 3 39,978.23
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