Accounting Assignment Week 5

16-1, 16-2, 16-3, 16-5 Exercise 16-1Identifying hard cash inflows and outflows Indicate which of the following items exit direct in cash inflows and which will result in cash outflows. The first unrivalled is shown as an example. Initial investiture Outflow Salvage prizes influx Recovery of working capital Inflow Incremental expenses Outflow Working capital commitments Outflow Costsavings Inflow Incremental revenue Inflow Exercise 16-2Determining the shew value of a lump-sum next cash receipt Stan Sweeney turned 20 grades old today. His grandfather established a deposit fund that will pay Mr. Sweeney $80,000 on his next birthday. However, Stan needs money today to start his college education. His father is willing to help and has agreed to give Stan the bequest value of the succeeding(a) cash inflow, assuming a 10 percent rate of knuckle under. Required A. Use a present value table to determine the amount of cash that Stan Sweeneys father should give him.Using the Present Value of $1 table, The factor for 1 year at 10% rate of return is 0. 90909 The PV of $80,000 after year 1 is PV = 80,000 * PV factor PV = 80000 * 0. 90909 PV = $72,727. 20 Based of The Present Value, Stan Sweeneys father should give him $72,727. 20 B. ) Use an algebraic formula to prove that the present value of the trust fund (the amount of cash computed in Requirement a) is equal to its $80,000 future value. Investment + (0. 90909 x Investment) = $80,000 $72,727 + (0. 12 x $72,727. 20) =$80,000 $72,727 + $7,273 = $80,000 $80,000 = $80,000Exercise 16-3Determining the present value of a lump-sum future cash receipt Marsha Bittner expects to receive a $600,000 cash benefit when she retires five years from today. Ms. Bittners employer has offered an early privacy incentive by agreeing to pay her $360,000 today if she agrees to retire immediately. Ms. Bittner desires to earn a rate of return of 12 percent. Required A. Assuming that the retirement benefit is the only considera tion in making the retirement deci- sion, should Ms. Bittner accept her employers offer? Ms. Bittner should not accept the her employers offer.B. Identify the factors that cause the present value of the retirement benefit to be less than $600,000 Inflation is one factor that could affect the present value of the retirement benefit. Taxes is another factor that could affect the present value of the retirement benefit. Exercise 16-5Determining net present value Metro Shuttle Inc. is considering investing in two new vans that are expected to generate com- bined cash inflows of $28,000 per year. The vans combined purchase price is $91,000. The ex- pected life and take over value of each are four years and $21,000, respectively.Metro Shuttle has an average cost of capital of 14 percent Required a. Calculate the net present value of the investment opportunity. Present Value FV X PRESENT VALUE = Present Value Equivalent Period 1 28,000 X 0. 877193 $24,561 Period 2 28,000 X 0. 769468 21, 545 Period 3 28,000 X 0. 74972 18,899 Period 4 28,000 X 0. 592080 16,578 TOTAL $ 81,583 b. Indicate whether the investment opportunity is expected to earn a return that is above or below the cost of capital and whether it should be accepted. The investment opportunity is anticipated to earn a return that is below the cost of capital. The investment should not be accepted.