# Acc202 Survey of Accounting: P16-23 Ernest Jones is reviewing his company’s investments

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Acc202 Survey of Accounting

Problem 16-23 Postaudit evaluation

Ernest Jones is reviewing his company’s investments in a cement plant. The company paid $15,000,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company’s discounts rate for present value computations is 8 percent. Expected and actual cash flow as follows:

Year 1 Year 2 Year 3 Year 4 Year 5

Expected 3,300,000 4,920,000 4,560,000 4,980,000 4,200,000

Actual 2,700,000 3,060,000 4,920,000 3,900,000 3,600,000

Required:

A.Compute the net present value of the expected cash flows as of the beginning of the investment

B.Compute the net present value of the actual cash flows as of the beginning of the investment

C.What do you conclude from this post audit?

Acc202 Survey of Accounting

Problem 16-23 Postaudit evaluation

Ernest Jones is reviewing his company’s investments in a cement plant. The company paid $15,000,000 five years ago to acquire the plant. Now top management is considering an opportunity to sell it. The president wants to know whether the plant has met original expectations before he decides its fate. The company’s discounts rate for present value computations is 8 percent. Expected and actual cash flow as follows:

Year 1 Year 2 Year 3 Year 4 Year 5

Expected 3,300,000 4,920,000 4,560,000 4,980,000 4,200,000

Actual 2,700,000 3,060,000 4,920,000 3,900,000 3,600,000

Required:

A.Compute the net present value of the expected cash flows as of the beginning of the investment

B.Compute the net present value of the actual cash flows as of the beginning of the investment

C.What do you conclude from this post audit?

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