The Porters’ food, clothing, and medical expenses are not fixed expenses. Explain what type of expense they are, and why.

What is the present value of the future cash flows, if you also could earn $110,000 per year rent on the property? The rent is p

dem82 [27]

Answer:

a. The present value of the sales price is $1.657 million.

b. No. This is because an investment in the property will result in a negative net present value (NPV) of $0.443 million.

c-1. The present value of the future cash flows is $2.122 million.

c-2. Yes. Yes. This is because an investment in the property will result in a positive net present value (NPV) of $0.022 million.

Explanation:

Note: This question is not complete. The complete question is therefore presented before answering the question as follows:

You can buy property today for $2.1 million and sell it in 6 years for $3.1 million. (You earn no rental income on the property.)

a. If the interest rate is 11%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

b. Is the property investment attractive to you?

c-1. What is the present value of the future cash flows, if you also could earn $110,000 per year rent on the property? The rent is paid at the end of each year. (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

c-2. Is the property investment attractive to you now?

The explanation to the answers is now provided as follows:

a. If the interest rate is 11%, what is the present value of the sales price? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

The present value of the sales price can be calculated using the simple present value formula as follows:

PV = FV / (1 + r)^n ……………………….. (1)

Where;

PV = Present value of the sales price = ?

FV = Future value or the sales price in 6 years = $3.1 million

r = interest rate = 11%, or 0.11

n = number of years = 6

Substitute the values into equation (1), we have:

PV = $3.1 / (1 + 0.11)^6

PV = $3.1 / 1.11^6

PV = $3.1 / 1.870414552161

PV = $1.65738659187525 million

Rounding to 3 decimal places, we have:

PV = $1.657 million

Therefore, the present value of the sales price is $1.657 million.

b. Is the property investment attractive to you?

No. This is because an investment in the property will result in a negative net present value (NPV) of $0.443 million.

The negative net present value (NPV) of $0.443 million is determined as follows:

NPV = Present value of the sales price - Acquisition cost = $1.657 million - $2.1 million = -$0.443 million

c-1. What is the present value of the future cash flows, if you also could earn $110,000 per year rent on the property? The rent is paid at the end of each year. (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

The present value of the future cash flows can be calculated using the following steps:

<u>Step 1: Calculation of the present value of the $110,000 per year rent</u>

Since the rent is paid at end of each year, this can be calculated using the formula for calculating the present value of an ordinary annuity as follows:

PVR = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (2)

Where;

PVR = Present value of yearly rent = ?

P = Annual rent =$110,000

r = interest rate = 11%, or 0.11

n = number of years = 6

Substitute the values into equation (2) to have:

PVR = $110,000 * ((1 - (1 / (1 + 0.11))^6) / 0.11)

PVR = $110,000 * 4.23053785373826

PVR = $465,359.163911209

Converting to million and rounded to 3 decimal places, we have:

PVR = $0.465 million

<u>Step 2: Calculation of the present value of the future cash flows</u>

Present value of future cash flows = Present value sales price + Present value of annual rent ……. (3)

Where;

Present value sales price = $1.657 million, as already calculate in part a above

Present value of annual rent = PVR = $0.465 million

Substituting the values into equation (3), we have:

Present value of future cash flows = $1.657 million + $0.465 million = $2.122 million

Therefore, the present value of the future cash flows is $2.122 million.

c-2. Is the property investment attractive to you now?

Yes. This is because an investment in the property will result in a positive net present value (NPV) of $0.022 million.

The positive net present value (NPV) of $0.022 million is determined as follows:

NPV = Present value of tof the future cash flows - Acquisition cost = $2.122 million - $2.1 million = 0.0219999999999998 million

Converting to million and rounded to 3 decimal places, we have:

NPV = $0.022 million

6 0

2 years ago

Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can

bixtya [17]

Answer:

Georgeland has an absolute but not a comparative advantage in producing clothing.

Explanation:

Absolute advantage is defined as the ability of a firm to produce higher amounts of a product as a result of use of the same resources with other competitors. It is usually bad a result of more efficient production process.

Comparative advantage is the ability of a firm to produce goods at a lower opportunity cost. Therefore they are able to sell at lower price compared to competitors.

Georgeland can produce 18 units of clothe per year while Alland can produce 16 units per year, so Georgeland has absolute advantage.

In producing clothes Georgeland has opportunity cost of 36 units of food which is higher than that of Alland which is 32 units of food. So Georgeland does not have comparative advantage in producing clothes.

3 0

2 years ago

Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the area. Four of the tests

ArbitrLikvidat [17]

Answer:

$13.33

Explanation:

Test A

Charging rate $65

Variable cost ($25)

Contribution margin $40

Contribution margin per machine hour $40/3=$13.33

8 0

2 years ago

At the beginning of the current period, Oriole Company had balances in Accounts Receivable of $191,500 and in Allowance for Doub

Dmitriy789 [7]

Answer:

The Journal entries are as follows:

(a) (i) Accounts receivable A/c Dr. $782,000

To sales revenue $782,000

(To record sales)

(ii) Cash A/c Dr. $697,920

To Accounts receivable $697,920

(To record receipt)

(b) Allowance for doubtful accounts Dr. $6,591

To Accounts receivable $6,591

(To record the write-off of uncollectible accounts)

(c) (i) Accounts receivable A/c Dr. $2,948

To Allowance for doubtful accounts $2,948

(To reinstate account previously written off)

(ii) Cash A/c Dr. $2,948

To Accounts receivable $2,948

(To record receipt)

(c) Bad debt expense [$23,400 - $6,197] A/c Dr. $17,203

To Allowance for doubtful accounts $17,203

(To record bad debt expense for the period)

Ending balance in accounts receivables:

= Opening balance + sales on account during the period - Collection during the period - write off during the period

= $191,500 + $782,000 - $697,920 - $6,591

= $268,989

Allowance for doubtful accounts unadjusted balance:

= $9,840 + $2,948 - $6,591

= $6,197

Ending balance in Allowance for Doubtful Accounts = $23,400

7 0

2 years ago

Suppose that the market demand for 32-oz. wide mouth Nalgene bottles is Q = 50,000p^-1.076, where Q is the quantity of bottles p

Natasha_Volkova [10]

Answer:

Equilibrium price and quantity

$6.44 and 6768

Consumer surplus

$571,081

Producer Surplus

$5,288

Explanation:

In this question, we are asked to calculate equilibrium price and quantity, consumer surplus and producer surplus.

Please check attachment for complete solution and step by step explanation

4 0

2 years ago