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21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
Page 58
8) When calculating the net present value of future cash streams, dollars that are received sooner are worth more
than dollars received later.
Answer:
TRUE
Diff: 1
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
9) A company has policy to invest in new opportunities if the investment has a positive NPV.
See data below:
Initial investment
$105,000
Yearly cash flows
$30,000
Number of years
4
Residual value
$10,000
Present Value of
an Annuity of $1
5%
6%
7%
8%
9%
10%
1
0.952
0.943
0.935
0.926
0.917
0.909
2
1.859
1.833
1.808
1.783
1.759
1.736
3
2.723
2.673
2.624
2.577
2.531
2.487
4
3.546
3.465
3.387
3.312
3.240
3.170
5
4.329
4.212
4.100
3.993
3.890
3.791
Present Value of
$1
5%
6%
7%
8%
9%
10%
1
0.952
0.943
0.935
0.926
0.917
0.909
2
0.907
0.890
0.873
0.857
0.842
0.826
3
0.864
0.840
0.816
0.794
0.772
0.751
4
0.823
0.792
0.763
0.735
0.708
0.683
5
0.784
0.747
0.713
0.681
0.650
0.621
If the company has a hurdle rate of 9%, this investment will yield a positive NPV and should be accepted.
Answer:
FALSE
Explanation:
Calculations:
3.240 × $30,000 = $97,200
0.708 × $10,000 = $7,080
$97,200 + $7,080 - $105,000 = ($720)
Diff: 3
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
58
Copyright © 2012 Pearson Education
Page 59
10) A company has policy to invest in new opportunities if the investment has a positive NPV.
See data below:
Initial investment
$105,000
Yearly cash flows
$30,000
Number. of years
4
Residual value
$10,000
Present Value of
an Annuity of $1
5%
6%
7%
8%
9%
10%
1
0.952
0.943
0.935
0.926
0.917
0.909
2
1.859
1.833
1.808
1.783
1.759
1.736
3
2.723
2.673
2.624
2.577
2.531
2.487
4
3.546
3.465
3.387
3.312
3.240
3.170
5
4.329
4.212
4.100
3.993
3.890
3.791
Present Value of
$1
5%
6%
7%
8%
9%
10%
1
0.952
0.943
0.935
0.926
0.917
0.909
2
0.907
0.890
0.873
0.857
0.842
0.826
3
0.864
0.840
0.816
0.794
0.772
0.751
4
0.823
0.792
0.763
0.735
0.708
0.683
5
0.784
0.747
0.713
0.681
0.650
0.621
If the company has a hurdle rate of 6%, this investment will yield a positive NPV and should be accepted.
Answer:
TRUE
Explanation:
Calculations:
3.465 × $30,000 = $103,950
0.792 × $10,000 = $7,920
$103,950 + $7,920 - $105,000 = $6,870
Diff: 3
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
11) The internal rate of return (IRR) is the rate of return, based on discounted cash flows, that a company can expect
to earn by investing in a capital asset.
Answer:
TRUE
Diff: 1
LO:
21-4
EOC Ref:
Accounting Vocabulary
AACSB:
Content/Knowledge
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
59
Copyright © 2012 Pearson Education
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