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Net present value | Accounting homework help

An investment proposal has the following probability distribution of returns:

Year 1 Year 2 Year 3
Return Probability Return Probability Return Probability
6,000 0.2 8,000 0.5 7,000 0.3
8,000 0.4 12,000 0.5 11,000 0.5
9,000 0.4 17,000 0.2

The events of each year are independent of other years. The outlay on the project is fixed at $22,000 and the appropriate discount rate figure is 10 percent.

Find the expected net present value.

 

Bozo Brothers purchased a machine that will be depreciated on the straight-line basis over an estimated useful life of 7 years with no salvage value. The machine is expected to generate cash flow, net of taxes, of $80,000 in each of the next 7 years. Bozo’s expected rate of return is 12%. Information on present value factors is as follows.

Present value of $1 at 12% for seven periods 0.452.

Present value of an ordinary annuity of $1 at 125 for seven periods 4.564

Assuming a positive net present value of $12,720, what was the original cost of the machine?

A. $240,400

B. $253,120

C. $352,400

D. $377,840

If Julius has a 15% tax rate and a 9% after-tax rate of return, $44,500 of income in three years will cost him how much tax in today’s dollars?

a. $5,153.

b. None of the choices are correct.

c. $34,354.

d. $6,675.

e. $44,500.

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