Answer:
Task 1. Use the table below to find the quantity of mangos demanded at each price.
For a price of $1, the quantity demanded of mangos is:
Q = 150 - 25 ($1)
Q = 125
For $2:
Q = 150 - 25 ($2)
Q = 150 - 50
Q = 100
For $3
Q = 150 - 25 ($3)
Q = 150 - 75
Q = 75
For $4
Q = 150 - 25 ($4)
Q = 150 - 100
Q = 50
For $5
Q = 150 - 25 ($5)
Q = 150 - 125
Q = 25
Task 2. Calculate the price elasticity of demand when the price falls from $5 to $4.
The formula is
Price Elasiticy of Demand (PED) = ((Q2 - Q1) / (Q2 + Q1) / 2 ) / ((P2 - P1) / ((P2 + P1) / 2)
Now, we plug the amounts into the formula
PED = ((50 - 25) / (50 + 25) / 2) / ((4 - 5) / (4 + 5) / 2)
PED = 0.1666 / -0.0556
PED = -3
We take the absolute value, 3, which is a PED higher than 1, meaning that demand is elastic: the quantity demanded in this case increased more than the price.
Task 3. When the price of a mango falls from $5 to $4, does total revenue fall or rise? How do you know?
Revenue = Price x Quantity
Under the first scenario, revenue = $5 x 25 = $125
Under the second scenario, revenue = $4 x 50 = $200
So revenue increased by $75.
Task 4. When the price of a mango falls from $3 to $2, does total revenue fall or rise?
First scenario = $3 x 75 = $225
Second scenario = $2 x 100 = 200
So revenue actually falls by $25.
Today, you deposit $2,500 of cash in a savings account that earns 8.0% in annualized interest. One interest payment is received at the end of every year. You make no other deposits or withdrawals.
In five years, the amount of interest on interest you have earned in your savings account is closest to: ________
a. $173
b. $175
c. $177
d. $1,000
e. $1,177
Answer:
a. $173
Explanation:
The computation of the amount of interest earned in five years is shown below;
But before that following calculations need to be done
As we know that
Simple interest = Present value × rate of interest × time period
= $2,500 × 8% × 5
= $1,000
Now the future value is
Future value = Present value × (1 + rate of interest)^number of years
= $2,500 ×(1 + 8%)^5
= $2,500 × 1.4693280768
= $3,673
Now the compound interest is
Compound interest = Future value - Present value
= $3,673 - $2,500
= $1,173
Now interest on interest is
Interest on interest = Compound interest - Simple interest
= $1,173 - $1,000
= $173
Stevenson Corporation acquires a one-year old building at a cost of $500,000 at the beginning of Year 2. The building has an estimated useful life of 50 years. However, based on reliable historical data, the company believes the carpeting will need to be replaced in 5 years, the roof will need to be replaced in 15 years, and the HVAC system will need to be replaced in 10 years. On the date of acquisition, the cost to replace these items would have been carpeting, $10,000; roof, $15,000; HVAC system, $30,000. Assume no residual value.
Required:
Determine the amount to be recognized as depreciation expense in Year 2 related to this building.
Answer:
$14,900
Explanation:
The computation of the amount recognized as a depreciation expense for the year 2 is shown below;
= Carpenting + roof + hvac system + building
= ($10,000 ÷ 5 years) + ($15,000 ÷ 15 years) + ($30,000 ÷ 10 years) + ($500,000 - $10,000 - $15,000 - $30,000) ÷ (50 years)
= $2,000 + $1,000 + $3,000 + $8,900
= $14,900
Record the withdrawal if Benson on the assumption that she is paid $30,000 in partnership cash plus equipment recorded on the partnership books at $70,000 less its accumulated depreciation of $23,200 for her equity.
Answer:
(a) Dr Benson, Capital 138,000
Cr North, Capital 138,000
(b) Dr Benson, Capital 138,000
Cr Schmidt, Capital 138,000
(c) Dr Benson, Capital 138,000
Cr Cash 138,000
(d) Dr Benson, Capital 138,000
Dr Meir, Capital 28,500
Dr Lau, Capital 47,500
Cr Cash 214,000
(e) Dr Benson, Capital 138,000
Dr Accumulated depreciation-Equipment 23,200
Cr Meir, Capital 22,950
Cr Lau, Capital 38,250
Cr Equipment 70,000
Cr Cash30,000
Explanation:
Preparation of the journal entry to record Benson's withdrawal under each independent assumptions.
(a) Dr Benson, Capital 138,000
Cr North, Capital 138,000
(b) Dr Benson, Capital 138,000
Cr Schmidt, Capital 138,000
(c) Dr Benson, Capital 138,000
Cr Cash 138,000
(d) Dr Benson, Capital 138,000
Dr Meir, Capital 28,500
[(214,000-134,800)*3/8]
Dr Lau, Capital 47,500
[(214,000-138,000)*5/8]
Cr Cash 214,000
(e) Dr Benson, Capital 138,000
Dr Accumulated depreciation-Equipment 23,200
Cr Meir, Capital 22,950
[(138,000+23,200)-(70,000+30,000)*3/8]
Cr Lau, Capital 38,250
[(138,000+23,200)-(70,000+30,000)*5/8]
Cr Equipment 70,000
Cr Cash30,000
4. What is another name for a command economy?
Answer:
planned economy
Also known as a planned economy, command economies have as their central tenet that government central planners own or control the means of production within a
Explanation:
hehe plss give me a heart
The teams are concerned with
rotating tasks and assignments
amongst its members are
Select one:
a. Self concerned
b. Self motivated
c. Self styled
d. Self-managed
= Self-managed
Answer:
Self-managed
Explanation:
the answer is Self-managed
The teams are concerned with
rotating tasks and assignments
amongst its members are
Select one:
a. Self concerned
b. Self m
During the year, the Senbet Discount Tire Company had gross sales of $1.14 million. The firm’s cost of goods sold and selling expenses were $533,000 and $223,000, respectively. The firm also had notes payable of $880,000. These notes carried an interest rate of 7 percent. Depreciation was $138,000. The firm’s tax rate was 35 percent.
What was the firm’s operating cash flow? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.)
Answer:
$319,460
Explanation:
Calculation for the firm’s operating cash flow
First step is to calculate EBIT and Taxes
Sales $1,140,000
Less Cost of goods sold 533,000
Less Selling costs 223,000
Less Depreciation 138,000
EBIT $246,000
Interest 61,600
(7%*$880,000)
Taxable income $184,400
(246,000-61,600)
TAXES 64,540
(35%*$184,400)
Now let calculate the firm’s operating cash flow using this formula
Operating cash flow = EBIT + Depreciation - Taxes
Let plug in the formula
Operating cash flow = $246,000 + $138,000 - $64,540
Operating cash flow = $319,460
Therefore the firm’s operating cash flow is $319,460
Differentiate domestic housekeeping from institutional housekeeping
Real and nominal income is calculated respectively at----
Select one:
a. Current price and current price
b. Constant price and Constant price
c. Current price and Constant Price
d. Constant price and Current price
= Constant price and Current price
Answer: Constant price and Current price
Explanation:
Real income and nominal income is calculated respectively at the constant price and the current price.
The constant prices has to do with the real values that has taken inflation into consideration. They are typically in real value.
The current prices are the prices of goods and services at a particular point in time. Current prices are typically in nominal value.
Therefore, the answer is option D.
Which one is not a benefit to
employee which results through
positive attitude of an employee
Select one:
a. Job security
b. Promotion
c. Less stress
d. Enjoying life
= Promotion
Answer:
I think its B
Explanation:
A is the probability of not losing your job
C Needs a Postive Attitude
D also Needs a Positive Attitude
The one which does not benefit the employee as a result of positive attitude of an employee is Promotion. Thus, option (B) is correct.
What is Promotion?Promotion in the context of a career means raising a worker's position or rank within a hierarchical structure of the organization. The promotion given to those employees who excel in their performance.
Promotion is the one that does not benefit the employee as a result of the employee's positive attitude. Therefore, it can be concluded that option (B) is correct.
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Which type of team rarely has the
authority to unilaterally implement
any of their suggestions?
= Problem-Solving Teams
Explanation:
Problem-Solving Teams is the right one hahahahahahahabaha
Breakthrough innovations account for ___% in the golden ratio on innovation
Group of answer choices
a. 20
b. 10
c. 5
d. 15
e. 25
what is pie times 1 billion of pie=
Answer:
14
Explanation:
Answer:
pie times 1 billion of pie= 9869604.40109
Explanation:
The following data is from Netflicks Company for 2020.
Sales revenue $96,000
Beginning inventory 12,800
Purchases 64,000
For each separate case a through e, estimate ending inventory.
a. Markup is 50% on cost. ?
b. Markup is 60% on sales. ?
c. Markup is 25% on cost. ?
d. Markup is 40% on sales. ?
e. Markup is 60% on cost. ?
Answer:
a. $12,800
b. $38,400
c. $0
d. $19,200
e. $16,800
Explanation:
Given the following;
Sales revenue $96,000
Beginning inventory $12,800
Purchases $64,000
Recall that
Opening inventory + purchases - sales = closing inventory
Also;
a. If Markup is 50% on cost, let the cost of the items sold be T then
50% * T + T = 96,000
1.5T = 96,000
Divide both side by 1.5
T = $64,000
Hence the closing inventory Y may be derived as
Y = 12800 + 64000 - 64000
Y = $12,800
b. If Markup is 60% on sale, let the cost of the items sold be T then
T = $96,000 - (60% * $96,000)
= $96000 - $57600
= $38400
Ending inventory Y = 12800 + 64000 - 38400
Y = $38,400
c. If Markup is 25% on cost, let the cost of the items sold be T then
25% * T + T = 96,000
1.25T = 96,000
Divide both side by 1.25
T = $76,800
Hence the closing inventory Y may be derived as
Y = 12800 + 64000 - 76800
Y = 0
This means all items were sold.
d. If Markup is 40% on sale, let the cost of the items sold be T then
T = $96,000 - (40% * $96,000)
= $96000 - $38400
= $57600
Ending inventory Y = 12800 + 64000 - 57600
Y = $19,200
e. If Markup is 60% on cost, let the cost of the items sold be T then
60% * T + T = 96,000
1.6T = 96,000
Divide both side by 1.6
T = $60,000
Hence the closing inventory Y may be derived as
Y = 12800 + 64000 - 60,000
Y = $16,800
Suppose you are conducting an analysis of the financial performance of Green Caterpillar Garden Supplies Inc. over the past three years. The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company's relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios.
Ratios Calculated
Year 1 Year 2 Year 3
Price-to-cash-flow 6.20 8.06 9.03
Inventory turnover 12.40 14.88 16.67
Debt-to-equity 0.30 0.32 0.38
Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report?
A. The company's creditworthiness has improved over these three years as evidenced by the increase in its debt-to-equity ratio over time.
B. The market value of Green Caterpillar Garden Supplies Inc.'s common shares declined over the three years.
C. A plausible reason why Green Caterpillar Garden Supplies Inc.'s price-to-cash-flow ratio has increased is that investors expect higher cash flow per share in the future.
. An improvement in the inventory turnover ratio could likely be explained by the new sales-forecasting strategies that led to better inventory management.
Answer:
The answer "Option C and Option D".
Explanation:
In Option A, This statement doesn't apply because its rise throughout the debt ratio contributes to a reduction in financial health. In Option B, This statement doesn't apply because the industry value of the stock could not be assumed to decrease. In Option C, This statement applies because the price-to-cash flows increase might be due to shareholders anticipating additional cash flow for each stock. In Option D, This statement is applicable because its increasing inventory selling ratio reflects the enhanced inventory control.A bank has written a call option on one stock and a put option on another stock. For the first option the stock price is 50, the strike price is 51, the volatility is 28% per annum, and the time to maturity is nine months. For the second option the stock price is 20, the strike price is 19, the volatility is 25% per annum, and the time to maturity is one year. Neither stock pays a dividend, the risk-free rate is 6% per annum, and the correlation between stock price returns is 0.4. Calculate a 10-day 99% VaR.
Answer:
10-Day 99% VaR = 3.61
Explanation:
Data Given:
For First Option:
Stock Price = 50
Strike Price = 51
Volatility = 28% per annum
Time to maturity = 9 months
For Second Option:
Stock Price = 20
Strike Price = 19
Volatility = 25% per annum
Time to maturity = 12 months or 1 year
Risk Free Rate = 6% per annum
Correlation = 0.4
Find 10-day 99% VaR.
Solution:
First of all we need to refer the DerivaGem Model to dig out the change in price equation for both the options.
So, according to DerivaGem Model, We have following data:
For First Option:
Value = -5.413
Delta Value = -0.589
For Second Option:
Value = -1.014
Delta = -0.284
Change in Price = (Delta value of First Option x Stock Price)Y1 + (Delta value of the second option x Stock Price)Y2
Change in Price = (-0.589 x 50)Y1 + (-0.284 x 20)Y2
So, We will get the Change in Price Linear Equation for both the options.
Change in Price = -29.45Y1 -5.68Y2
Now, we have to calculate the Daily Volatility Percentage.
Formula:
Daily Volatility Percentage = Volatility/ Square root of number of days active in annum
Number of Days Active = 252
Volatility for First Option = 28%
Volatility for Second Option = 25%
Daily Volatility Percentage for First Option = 28%/[tex]\sqrt{252}[/tex]
Daily Volatility Percentage for First Option = 0.0176
Similarly,
Daily Volatility Percentage for Second Option = 25%/[tex]\sqrt{252}[/tex]
Daily Volatility Percentage for Second Option = 0.0157
Now, utilizing the above calculated data, we can find the one-day variance of change in price.
1-Day Variance =[tex](29.45^{2} *0.0176^{2}) + (5.68^{2} * 0.0157^{2}) - (2 * 29.45 * 0.0176 * 5.68 * 0.0157 * 0.4)[/tex]
Solving the above equation:
We get:
1-Day Variance = 0.2396
Now, we have to find the standard deviation of 1-Day Variance:
SD of 1-Day Variance = [tex]\sqrt{0.2396}[/tex]
SD of 1-Day Variance = 0.4895
So,
Now, in order to find the value of one day 99% VaR from the table, we have all the prerequisites.
So,
Value of One day 99% VaR from table = 2.33
But we need 10-Day 99% VaR.
So, number of days = 10
Hence,
10-Day 99% VaR = [tex]0.4895 * 2.33 * \sqrt{10}[/tex]
10-Day 99% VaR = 3.61
Rodriguez Corporation issues 8,000 shares of its common stock for $208,800 cash on February 20. Prepare journal entries to record this event under each of the following separate situations.
a. The stock has a $14 par value.
b. The stock has neither par nor stated value.
c. The stock has a $7 stated value.
Answer:
A. Dr Cash $208,800
Cr Common stock, $14 par value $112,000
Cr Paid-in capital in excess of par value,common stock $96,800
B. Dr Cash $208,800
Cr Common stock, no-par value $208,800
C. Dr Cash $208,800
Cr Common stock, $7stated value $56,000
Cr Paid-in capital in excess of statedvalue, common stock$152,800
Explanation:
Preparation of Journal entries
a. The stock has a $14 par value.
Dr Cash $208,800
Cr Common stock, $14 par value $112,000
($14 par value*8,000 shares)
Cr Paid-in capital in excess of par value,common stock $96,800
($208,800-$112,000)
b. The stock has neither par nor stated value.
Dr Cash $208,800
Cr Common stock, no-par value $208,800
c. The stock has a $7 stated value.
Dr Cash $208,800
Cr Common stock, $7stated value $56,000
($7 par value*8,000 shares)
Cr Paid-in capital in excess of statedvalue, common stock$152,800
($208,800-$56,000)
Case studies can _________ be cross-representational from company to company.
rarely
always
never
usually
Which option identifies the concept represented in the following scenario? Winn-Dixie has acquired the nine Gooding's grocery stores in Florida.
- vertical consolidation
- horizontal consolidation
- oligopolistic consolidation
- monopolistic consolidation
Answer:
oligopolistic consolidation
Answer:
maybe vertical
Explanation:
Which of the following is NOT a
characteristic of organizations with
significant political activity?
Select one:
a. Win-win approach to reward
allocations
b. Role ambiguity
c. Opportunities for promotion
an advancement
d. Declining or scarce resources
= Win-win approach to reward
allocations
Explanation:
Win-win approach to reward
allocations
If the government issued license to pollute a total of 1,600 tons of emissions, the market price to emit 1 ton of emissions would equal:___________.
Answer:
$450 per ton.
Explanation:
The government has allowed to pollute 1600 ton of emission. The business has secured license from the government to run its business activities and drain the polluted waste in the sea. The total pollution allowed is 1600 tons and the cost of securing the license is $720,000. The cost per ton of emission would be $450.
You have the following information
Salam $1,000
Net profit margin= 5%.
Calculate Net Income
Answer:
$50
Explanation:
Net income will be the difference between the selling price and the Cost price.
Cost price is $1000
net profit margin is 5%, selling price will be
=$1000 + profit margin
= $1000 + (5/100 x 1000)
=$1000 + $50
=$1050
Net income = $1050 -$50
=$50
Most of the assets were bought a long
time ago and would worth much more
than the books show today.
What is the accounting principle?
Answer:
Historical cost principle
Explanation:
Assets must be recorded at cost value, not market value. When you record an asset, you cannot change its value every period, you have to keep using the historical value. This is why we use a separate account to record accumulated depreciation of assets, so that the purchase cost is always constant, but the net carrying value will vary depending on depreciation expense.
Market value changes and can be very volatile. Imagine a house, whose initial value was $300,000, then it increased to $500,000 but the market went down and its value was $350,000. It would be a mess to change the value and pay capital gains taxes, or then report a loss.
Each year, Tom and Cindy Bates (married filing jointly) report itemized deductions of $20,000 (which includes an annual $4,000 pledge payment to their church). Upon the advice of a friend, they do the following: In early January 2019, they pay their 2018 pledge; during 2019, they pay the 2019 pledge; and in late December 2019, they prepay their 2020 pledge.
a. What are the Bateses trying to accomplish? To have their itemized deductions exceed the standard deduction .
b. What would the Bates' total itemized deductions be if all three church pledge payments were made in 2019? Assume that the itemized deductions of $20,000 already included one year of the church pledge payments. $ 12,000 What will be the Bates' tax saving if their marginal tax bracket is 24% for all three years? (Assume that the standard deduction amounts for 2019 and 2020 are the same.) By concentrating their charitable contributions, their tax savings becomes $ 2,000 X.
Answer:
a. What are the Bateses trying to accomplish?
To have their itemized deductions exceed the standard deduction.
In 2019, the standard deduction was $24,400, so in order for itemizing to make sense, the total amount itemized must be above that threshold.
b. What would the Bates' total itemized deductions be if all three church pledge payments were made in 2019? Assume that the itemized deductions of $20,000 already included one year of the church pledge payments. $ 12,000 What will be the Bates' tax saving if their marginal tax bracket is 24% for all three years? (Assume that the standard deduction amounts for 2019 and 2020 are the same.) By concentrating their charitable contributions, their tax savings becomes $ 2,000 X.
total itemized deductions = $20,000 + $4,000 + $4,000 = $28,000
tax savings = ($28,000 - $24,400) x 24% = $864
The situation in which expansionary fiscal policy does not lead to a rise in aggregate output is referred to as
Select one:
a. Fiscal neutrality.
b. Inflation.
c. Complete crowding out
d. A recession.
= Complete crowding out
Answer: The situation in which expansionary fiscal policy does not lead to a rise in aggregate output is referred to as
Select one:
a. Fiscal neutrality.
b. Inflation.
c. Complete crowding out
d. A recession.
Explanation:
The situation in which expansionary fiscal policy does not lead to a rise in aggregate output is referred to as complete crowding out.
What is fiscal policy?A fiscal policy refers to the use of government spending and policies for influencing economic conditions.
The situation in which expansionary fiscal policies do not lead to a rise in aggregate output is referred to as complete crowding out.
Therefore, C is the correct option.
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Identify the items/accounts from the following list that are likely to serve as source documents.
a. Sales ticket
b. Trial balance
c. Balance sheet
d.Telephone bill
e. Invoice from supplier
f. Company revenue account
g. Income statement
h. Bank statement
i. Prepaid insurance
Answer and Explanation:
The following are the items that considered as a source documents
a. sales ticket
b. Telephone bill
c. Invoice from supplier
d. The bank statement
These four items would be classified as source documents
Basically the source document is the information that used as a source for recording the accounting entries either in electronic form or in paper form
Sprague Company has been operating for several years, and on December 31, 207, presented the following balance sheet.
SPRAGUE COMPANY BALANCE SHEET DECEMBER 31, 2014
Cash $40,000
Accounts payable $80,000
Receivables 75000
Mortgage payable 140,200
Inventory 95000
Common stock ($1 par) 150,000
Plant assets (net) 220,000
Retained earnings 60,000 430000
The net income for 2017 was $25,000. Assume that total assets are the same in 2016 and 2017.
Compute each of the following ratios. for each of the four, indicate the manner in which it is computed and its significance as tool in the analysis of the financial soundness of the company
a) Current ratio
b) Acid-test ratio
c) Debt to assets ratio
d) Return on asset
Answer:
A. Current Ratio= 2.63
B. Acid-Test Ratio = 1.44
C. Debt to Assets Ratio 51.16%
D. Return on assets 5.81%
Explanation:
a. Calculation forn Current Ratio
First step is to Calculate the Total Current Assets
Cash 40,000
Receivables 75,000
Inventory 95,000
Total Current Assets 210,000
Now let calculate Current Ratio
Current Ratio= Current Assets / Current Liabilities
Current Ratio=210,000/80,000
Current Ratio= 2.63
b Calculation for Acid-Test Ratio
Acid-Test Ratio=(Current Assets - Inventory) / Current Liabilities
Acid-Test Ratio =(210,000-95,000)/80,000
Acid-Test Ratio =115,000/80,000
Acid-Test Ratio = 1.44
c. Calculation for Debt to Assets Ratio
First step is to calculate total Debt
Accounts payable 80,000
Mortgage payable 140,000
Total Debt 220,000
Now let calculate the Debt to Assets Ratio
Debt to Assets Ratio= Total Debt/ Total Assets
Debt to Assets Ratio=220,000/430,000
Debt to Assets Ratio= 51.16%
d. Calculation for Return on assets
Return on assets= Net Income/ Average Assets
Return on assets=25,000/430,000
Return on assets 5.81%
Why might Gross Domestic Product not be the most accurate measure of an economy's health? (Explain at least 3 reasons)
Answer: See explanation
Explanation:
The gross domestic product is the value of an economy's final goods which the economy produces. The reasons why Domestic Product may not be the most accurate measure of an economy's health include:
• It doesn't take into account the value of the works of housewives, volunteers etc.
• The gross domestic product doesn't measure the quality of education that is offered, the children's health, happiness etc.
• GDP takes into consideration the market prices and therefore, activities that are outside the market are left out and not measured.
What is the deference between research and report
In Mexico each unit of resource can produce either one professional computer or 3 computer games. Mexico has 30 units of this resource.
a. Draw Mexico's production possibilities curve.
b. What is the opportunity cost of on professional computer?
c. Is the production of professional computers subject to constant or increasing opportunity cost?
d. Which of the goods being produced is considered a capital good?
e. In the absence of trade, should Mexico increase production of professional computers or computer-games if it desires more rapid economic growth?
Answer:
Explanation:
From the information given:
(a)
The total production available for the professional computers at the time Mexico uses all resources for production = 30
The total production of computer games at this time = 3 × 30 = 90
Thus, from above, the production possibility curve can be seen in the image attached below.
(b)
The opportunity cost of one professional computer is three computer games. This because, for them to produce one more computer, it is required that they give up three computer games.
(c)
Yes, it is subject to Increasing.
This because the opportunity cost of 1 computer = 3 games
For two computers = 2 × 3 games = 6 games
For three computers = 3 × 3 games = 9 games ... and so on.
(d)
Professional computer production is considered a Capital good.
(e)
Mexico should increase the production of professional computers because they help in more rapid economic growth.
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area:
Cost of new equipment and timbers $310,000
Working capital required $190,000
Annual net cash receipts $125,000
Cost to construct new roads in year three $58,000
Salvage value of equipment in four years $83,000
Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 20%.
Required:
A. Determine the net present value of the proposed mining project.
B. Should the project be accepted?
1. Yes.
2. No.
Answer:
NPV = -$78,318
Explanation:
cash flow 0 = -$310,000 - $190,000 = -$500,000
cash flow 1 = $125,000
cash flow 2 = $125,000
cash flow 3 = $125,000 - $58,000 = $67,000
cash flow 4 = $125,000 + $83,000 + $190,000 = $398,000
NPV = -$500,000 + $125,000/1.2 + $125,000/1.2² + $67,000/1.2³ + $398,000/1.2⁴ = -$78,318