11) The following data was compiled for Infer-Tech PC Company in order to assess the effect of a $500,000 initial investment with a $70,000 operating cost increase per year over a five year period. The company factored in a 15% required rate of return.
YEAR YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
CASH FLOW-$500,000$170,000$170,000$170,000$170,000$170,000
PRESENT VALUE OF $1
DISCOUNTED AT 15% :
$1.00 $0.86957 $0.75614 $0.65752 $0.57175 $0.49718
-$500,000$147,827$________ $111,778$________$84,521
Required
Compute the present value of the investment in year 2 and year 4.
A) $132,444; $85,669
B) $120,522; $72,996
C) $115,669; $85,000
D) $128,544; $97,198
E) $105,008; $80,663
12) The following information was compiled for Infer-Tech PC Company applying a $500,000 initial investment with an $80,000 operating cost increase per year over a five year period. The company factored in a 15% required rate of return.
YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Operating Income:
Assets:
Capital Charge:
RI:
$80,000$80,000$80,000$80,000$80,000
$500,000$400,000$300,000$200,000$100,000
$75,000$60,000$45,000$30,000$15,000
$5,000$20,000$35,000$50,000$65,000
$4,348 $________$23,013$________$32,316
Required
Compute the present value of the investment in years 2 and 4. Next, compute the net present value for the investment for the full five years.
A) $17,688; $29,599; $98,952
B) $15,123; $28,588; $103,388
C) $11,015; $22,336; $105,950
D) $15,866; $25,411; $101,990
E) $5,652; $32,652; $85,420
13) The Hobby Shop Company has outlets in Olympia, WA, Boise, ID, and Boston, MA. The gross book value of long-term assets at historical costs that the Olympia outlet holds is $1,600,000, the Boise outlets holds $2,400,000 and the Boston outlet holds $3,200,000. The construction cost index for all three outlets in 2012 was 190. The construction cost index the year that the Olympia outlet was built was 120, the year that the Boise outlet was built it was 160 and the year that the Boston outlet was built it was 170.
Required
Compute the gross book assets at current cost at the end of 2012 for the Olympia outlet, the Boise outlet, and the Boston outlet.
A) $2,360,363; $1,650,022; $688,520
B) $1,866,352; $2,148,633; $1,225,333
C) $2,533,333; $2,850,000; $3,576,471
D) $1,955,000; $2,225,036; $4,020,333
E) $3,148,523; $3,963,000; $455,630
14) The Hobby Shop Company owns outlets in Olympia, WA, Boise, ID, and Boston, MA. The operating income for the Olympia outlet is $260,000 while the operating incomes for the Boise and Boston outlets are $320,000 and $620,000. The 2012 gross book value of the total assets for the Olympia outlet is $2,300,000 and for the Boise outlet and Boston outlet the gross book value of the total assets is $2,800,000 and $4,100,000.
Required
Compute the 2012 ROIs for the Olympia outlet, the Boise outlet, and the Boston outlet for the Hobby Shop Company.
A) 10.1%; 11.2%; 9.9%
B) 11.3%; 11.4%; 15.1%
C) 12.5%; 12.3%; 16.0%
D) 10.9%; 11.1%; 13.5%
E) 9.8%; 10.2%; 14.0%
15) Why should managers evaluate subunits over multiple years?
16) How do managers determine if assets are measured at historic costs, or current costs?
17) Why may current-cost estimates be difficult to obtain for some assets?
18) What are the advantages of the net book value?