Assume the following information for a capital budgeting proposal with a five-year time horizon:Initial investment:Cost of equipment (zero salvage value)$ 500,000Annual revenues and costs:$ 300,000$ 130,000$ 50,000$ 40,000Sales revenuesVariable expensesDepreciation expenseFixed out-of-pocket costsClick here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.If the company's discount rate is 12%, then the net present value for this investment is closest to:Multiple Choice$211,600.$(31,350).$(111,600).$(211,600).

NPV= Present value of cashinflows - Present value of cashoutflows.

Answered: company's discount rate is 12%, then…

company's discount rate is 12%, then the net present value for this investment is closest to: Multiple Choice $21,600. $(31,350) S(1,600). $21,600).

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4PB

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Assume the following information for a capital budgeting proposal with a five-year time horizon:
Initial investment:
Cost of equipment (zero salvage value)
$ 500,000
Annual revenues and costs:
$ 300,000
$ 130,000
$ 50,000
$ 40,000
Sales revenues
Variable expenses
Depreciation expense
Fixed out-of-pocket costs
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.
If the company's discount rate is 12%, then the net present value for this investment is closest to:
Multiple Choice
$211,600.
$(31,350).
$(111,600).
$(211,600).

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