Showing 54-55 out of 86
21.doc-Accounting, 9e, Global Edition (Horngren) C...
21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
21.doc-Accounting, 9e, Global Editi...
21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
Page 54
41) Julio has just received a legal judgment in a civil court case which awards him a settlement of $24,000 to
be
received two years from now.
He would like to sell the rights to the settlement money to a financial institution, so
that he can have the cash now.
In order to estimate the present value of the settlement, he will use a discount rate of
6%.
What is the present value of the settlement?
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
6
0.746
0.705
0.666
0.630
0.596
0.564
7
0.711
0.665
0.623
0.583
0.547
0.513
8
0.677
0.627
0.582
0.540
0.502
0.467
9
0.645
0.592
0.544
0.500
0.460
0.424
10
0.614
0.558
0.508
0.463
0.422
0.386
A) $20,160
B) $21,360
C) $22,360
D) $22,590
Answer:
B
Explanation:
B) Calculations:
0.890 × $24,000 = $21,360
Diff: 2
LO:
21-3
EOC Ref:
S21-7
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
Learning Objective 21-4
1) Net present value is defined as the difference between the present value of the project's cash inflows and the
investment's cost.
Answer:
TRUE
Diff: 1
LO:
21-4
EOC Ref:
Accounting Vocabulary
AACSB:
Content/Knowledge
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
54
Copyright © 2012 Pearson Education
Page 55
2) If a company uses a higher discount rate to calculate NPV of an investment, it reflects a higher level of perceived
risk for the investment.
Answer:
FALSE
Diff: 1
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
3) Dakka Company is considering an investment of $500,000 in a financial instrument that is expected to return cash
flows of $80,000 a year for 10 years.
The operations manager says that it is a "no-brainer" because the total cash
flows are $800,000, and it has a payback of just over six years.
The VP Finance expresses caution.
He says that
because Dakka uses a 10% hurdle rate, a more thorough analysis may show that the investment does not qualify
under the company's investment criteria.
Considering the information provided, the company should reject the
investment.
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
6
5.076
4.917
4.767
4.623
4.486
4.355
7
5.786
5.582
5.389
5.206
5.033
4.868
8
6.463
6.210
5.971
5.747
5.535
5.335
9
7.108
6.802
6.515
6.247
5.995
5.759
10
7.722
7.360
7.024
6.710
6.418
6.145
Answer:
TRUE
Explanation:
Calculations: $500,000 - (6.145 × $80,000) = ($8,400)
Diff: 2
LO:
21-4
EOC Ref:
E21-22
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
55
Copyright © 2012 Pearson Education
Ace your assessments! Get Better Grades
Browse thousands of Study Materials & Solutions from your Favorite Schools
San Jose State University
San_Jose_State_University
School:
Managerial_Accounting
Course:
Great resource for chem class. Had all the past labs and assignments
Leland P.
Santa Clara University
Introducing Study Plan
Using AI Tools to Help you understand and remember your course concepts better and faster than any other resource.
Find the best videos to learn every concept in that course from Youtube and Tiktok without searching.
Save All Relavent Videos & Materials and access anytime and anywhere
Prepare Smart and Guarantee better grades
Know more
Students also viewed documents
lab 18.docx
lab_18.docx
Course
Course
3
Module5QuizSTA2023.d...
Module5QuizSTA2023.docx.docx
Course
Course
10
Week 7 Test Math302....
Week_7_Test_Math302.docx.docx
Course
Course
30
Chapter 1 Assigment ...
Chapter_1_Assigment_Questions.docx.docx
Course
Course
5
Week 4 tests.docx.do...
Week_4_tests.docx.docx
Course
Course
23
Week 6 tests.docx.do...
Week_6_tests.docx.docx
Course
Course
106
