ACCT346 Managerial Accounting: Week 7 Assignment

ACCT346 Managerial Accounting 
Week 7 Assignment 

1. Gomez Corporation is considering two alternative investment proposals with the following data 
Proposal X Proposal Y 
Investment 850,000 468,000 
Useful life 8 8 
Estimated annual net cash inflows for 8 years 125,000 78,000 
Residual value 40,000 - 
Depreciation method Straight-line Straight-line 
Required rate of return 14% 10% 

1a. How long is the payback period for Proposal X? 
1b. What is the accounting rate of return for Proposal Y? 

2. You have been awarded a scholarship that will pay you $500 per semester at the end of each of the next 8 semesters that you earn a GPA of 3.5 or better. You are a very serious student and you anticipate receiving the scholarship every semester. 
Using a discount rate of 3% per semester, which of the following is the correct calculation for determining the present value of the scholarship? PLEASE STATE WHY YOU CHOSE THE ANSWER THAT YOU DID. 
A) PV = $500 × 3% × 8 
B) PV = $500 × (Annuity PV factor, i = 3%, n = 8) 
C) PV = $500 × (Annuity FV factor, i = 6%, n = 4) 
D) PV = $1,000 × (PV factor, i = 3%, n = 4) 

3. Maersk Metal Stamping is analyzing a special investment project. The project will require the purchase of two machines for $30,000 and $8,000 (both machines are required). The total residual value at the end of the project is $1,500. The project will generate cash inflows of $11,000 per year over its 8-year life. 
If Maersk requires a 6% return, what is the net present value (NPV) of this project? (Use present value tables or Excel.) 

4. Hincapie Manufacturing is evaluating investing in a new metal stamping machine costing $30,924. Hincapie estimates that it will realize $12,000 in annual cash inflows for each year of the machine's 3-year useful life. 
Approximately, what is the the internal rate of return (IRR) for the machine? (Use present value tables or Excel.)
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