Log in
HomeClass Notes1,200,000CA670,000

AFM102 Lecture Notes - Income Tax, Historical Cost, Standard Deviation

95 views2 pages
lemoncoyote675
16 Oct 2011
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM102
Professor
Tony Atkinson

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Pv = annuity x annuity present value factor (from table) Payments paid annuity a = pv x capital recovery factor(table) The more the periods or the bigger the rate the less valuable the a fixed amount of cashed received in the future will be. Net = depreciation + income tax tax. Payback method = investment / return ( increase in profits ) Each other year show the present value of the return and subtract it from amount left to recover from investment. Number of periods it takes to recover = the year that has amount left less than next year"s profit + ( amount left / next year"s profit present value ) Annual depreciation = (historical cost salvage value) / asset life. Accounting rate of return = average income / average investment. Convert the cost of capital to match period. Identify cash flows ( inflow from annuity, outflow from investment, inflow from salvage value )

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

AFM102 Chapter Notes - Chapter 13: Discounted Cash Flow, Investment, Current Liability
viridianleopard866
AFM102 Chapter Notes - Chapter 13: Net Present Value, Discounted Cash Flow, Capital Budgeting
orangecoyote929
AFM102 Chapter Notes - Chapter 13: Net Present Value, Discounted Cash Flow, Capital Budgeting
orangecoyote929

Related Questions

Merrill Corp. has the following information available about a potential capital investment:

Initial investment $ 600,000
Annual net income $ 60,000
Expected life 8 years
Salvage value $ 70,000
Merrill’s cost of capital 7 %


Assume straight line depreciation method is used.

Required:
1. Calculate the project’s net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)


3. Calculate the net present value using a 14 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

Merrill Corp. has the following information available about apotential capital investment:

Initial investment $ 2,400,000
Annual net income $ 170,000
Expected life 8 years
Salvage value $ 180,000
Merrill’s cost of capital 8 %


Assume straight line depreciation method is used.


Required:
1. Calculate the project’s net present value. (FutureValue of $1, Present Value of $1, Future Value Annuity of $1,Present Value Annuity of $1.) (Use appropriate factor(s)from the tables provided. Do not round intermediate calculations.Round the final answer to nearest whole dollar.)




2. Calculate the net present value using a 10percent discount rate. (Future Value of $1, Present Value of $1,Future Value Annuity of $1, Present Value Annuity of $1.)(Use appropriate factor(s) from the tables provided. Do notround intermediate calculations. Round the final answer to nearestwhole dollar.)

Beacon Manufacturing, Inc. is planning to buy a new cutting machine. The machine costs $125,000, has an estimated life of ten years and no salvage value. The machine is expected to have the following impact:

Increment revenue............................................................................................ $30,000

Incremental expenses:

Expenses other than depreciation.................................................................... (8,000)

Straight-line depreciation............................................................................... (12,500)

Incremental net income..................................................................................... $9,500

All revenue and expenses other than depreciation will be received or paid in cash. Compute the following for this proposal:

1. What is the annual net cash flow expected from the cutting machine investment? $____________

1. What is the expected payback period of the cutting machine investment? ______ years

2. What is the expected return on average investment associated with the cutting machine? ____________%

3. What is the net present value of the cutting machine discounted at an annual rate of 10%, if the present value of a ten-year $1 annuity discounted at 10% is 6.145? $____________

4. What is the net present value of the cutting machine discounted at an annual rate of 20%, if the present value of a ten-year $1 annuity discounted at 20% is 4.192? $____________