Investment Decision Analysis-1

PART 4B INVESTMENT DECISION ANALYSIS 216 QUESTIONS

[1] Source: CMA 0692 4-15 The recommended technique for ev!utin" #ro$ect% &hen c#it! i% rtioned nd there re no mutu!!' e(c!u%ive #ro$ect% from &hich to choo%e i% to rn) the #ro$ect% *' A+ Accountin" Accountin" rte of return+ ,+ '*c)+ C+ .ntern! rte of return+ /+ rofit*i!it' inde(+

The initi! co%t of the equi#ment for the #ro$ect i% 827000 nd >rfie!d e(#ect% to %e!! the equi#ment for 89000 t the end of the tenth 'er+ The equi#ment &i!! *e de#recited over = 'er%+ The #ro$ect require%  &or)in" c#it! inve%tment of 8=000 t it% ince#tion nd nother 85000 t the end of 'er 5+ A%%umin"  40< mr"in! t( rte the e(#ected net c%h f!o& from the #ro$ect in the tenth 'er i% A+ 872000+ ,+ 824000+ C+ 820000+ /+ 811000+ [6] Source: CMA 1292 4-11 The *i!out #'*c) method A+ .ncor#orte% the time time v!ue of mone'+ mone'+

[2] Source: CMA 0692 4-16 The net #re%ent v!ue 3 method of inve%tment #ro$ect n!'%i% %%ume% tht the #ro$ect% c%h f!o&% re reinve%ted t the A+ Com#uted intern! rte of return+ ,+ i%)-free intere%t rte+ C+ /i%count rte u%ed in the  c!cu!tion+ /+ irm% ccountin" rte of return+ [7] Source: CMA 0692 4-21 The technique tht me%ure% the e %timted #erformnce of  c#it! inve%tment *' dividin" the #ro$ect% nnu! fter-t( net income *' the ver"e inve%tment co%t i% c!!ed the A+ ,i!-out #'*c) #'*c) method+ ,+ .ntern! rte of return method+

,+ ?qu!% the recover' #eriod from norm! o#ertion%+ C+ ?!iminte% the di%#o%! v!ue from the #'*c) c!cu!tion+ /+ Me%ure% the ri%) if  #ro$ect i% terminted+ [=] Source: CMA 1292 4-17 A &e)ne%% &e)ne%% of the intern! rte of return .3 ##roch for determinin" the cce#t*i!it' of inve%tment% i% tht it A+ /oe% not con%ider con%ider the time v!ue of of mone'+ mone'+ ,+ .% not  %tri"htfor&rd deci%ion criterion+ C+ .m#!icit!' %%ume% tht the firm i% *!e to r einve%t #ro$ect c%h f!o&% t the firm% co%t of c#it!+ /+ .m#!icit!' %%ume% tht the firm i% *!e to r einve%t #ro$ect c%h f!o&% t the #ro$ect% intern! rte of return+

C+ rofit*i!it' inde( method+ /+ Accountin" rte of return method+

[@] Source: CMA 1292 4-14 The #rofit*i!it' inde( ##roch to inve%tment n!'%i% A+ i!% to con%ider con%ider the timin" of #ro$ect c%h f!o&%+ f!o&%+

[4] Source: CMA 1292 4-9 e"! .ndu%trie% i% re#!cin"  "rinder #urch%ed 5 'er% "o for 815000 &ith  ne& one co%tin" 825000 c%h+ The ori"in! "rinder i% *ein" de#recited on  %tri"ht-!ine *%i% over 15 'er% to  ero %!v"e v!ue; e"! &i!! %e!! thi% o!d equi#ment to  third #rt' for 86000 c%h+ The ne& equi#ment &i!! *e de#recited on  %tri"ht-!ine *%i% over 10 'er% to  ero %!v"e v!ue+ A%%umin" A%%umin"  40< mr"in! t( rte e"!% net c%h inve%tment t the time of #urch%e if the o!d "rinder i% %o!d nd the ne& one #urch%ed i% A+ 819000+ ,+ 815000+ C+ 81=400+ /+ 825000+ [5] Source: CMA 1292 4-10 >rfie!d .nc+ i% con%iderin"  10-'er c#it! inve%tment #ro$ect &ith forec%ted revenue% of 840000 #er 'er nd forec%ted c%h o#ertin" e(#en%e% of 829000 #er 'er+

,+ Con%ider% on!' the #ro$ect% contri*ution to net income nd doe% not con%ider c%h f!o& effect%+ C+ A!&'% 'ie!d% the %me cce#tre$ect deci%ion% for inde#endent #ro$ect% % the net #re%ent v!ue method+ /+ A!&'% 'ie!d% the %me cce#tre$ect deci%ion% for mutu!!' e(c!u%ive e(c!u%ive #ro$ect% % the net #re%ent v!ue method+ [9] Source: CMA 1292 4-15 The rn)in"% of mutu!!' e(c!u%ive inve%tment% determined u%in" the intern! rte of return method .3 nd the net #re%ent v!ue method 3 m' *e different &hen A+ The !ive% !ive% of the mu!ti#!e #ro$ect% re equ! nd the %ie of the r equired inve%tment% re equ!+ ,+ The required rte of return equ!% the . of ech #ro$ect+ C+ The required rte of return i% hi"her thn the . of ech #ro$ect+

The world's largest digital library

Try Scribd FREE for 30 days to access over 125 million titles without ads or interruptions! Start Free Trial Cancel Anytime.















C+ /+ Mu!ti#!e #ro$ect% hve unequ! !ive% !ive% nd the %ie of the inve%tment for ech #ro$ect i% different+

o

De%

De%

o

De%

o

/+ [10] Source: CMA 1292 4-16 Bhen u%in" the net #re%ent v!ue method for c#it! *ud"etin" n!'%i% the required rte of return i% c!!ed !! of the fo!!o&in" e(ce#t the A+ i%)-free rte+ ,+ Co%t of c#it!+ C+ /i%count rte+ /+ Cutoff rte+ [11] Source: CMA 1292 4-19 The #ro#er di%count rte to u%e in c!cu!tin" certint' equiv!ent net #re%ent v!ue i% the A+ i%)-d$u%ted di%count rte+ ,+ Co%t of c#it!+ C+ i%)-free rte+ /+ Co%t of equit' c#it!+ [12] Source: CMA 0697 4-19 f the fo!!o&in" deci%ion% c#it! *ud"etin" technique% &ou!d !e%t !i)e!' *e u%ed in ev!utin" the A+ Acqui%ition Acqui%ition of ne& ircrft ircrft *'  cr"o com#n'+ com#n'+ ,+ /e%i"n nd im#!ementtion of  m$or dverti%in" #ro"rm+ C+ Trde for  %tr qurter*c) *'  foot*!! tem+ /+ Ado#tion of  ne& method of !!octin" nontrce*!e co%t% to #roduct !ine%+ [17] Source: CMA 0697 4-21 ?%%e( Cor#ortion i% ev!utin"  !e%e tht t)e% effect on Mrch 1+ The com#n' mu%t m)e ei"ht equ! #'ment% &ith the fir%t #'ment due on Mrch 1+ The conce#t mo%t re!evnt to the ev!ution of the !e%e i%

[ct ttern E1] The fo!!o&in" %e!ected dt #ertin to  4-'er #ro$ect *ein" con%idered *' Metro .ndu%trie%: ｷ A de#reci*!e %%et tht co%t% 81200000 &i!! *e cquired on Fnur' 1+ The %%et &hich i% e(#ected to hve  8200000 %!v"e v!ue t the end of 4 'er% 'er% qu!ifie% qu!ifie% % 7-'er 7-'er #ro#ert' under the Modified Acce!erted Co%t ecover' S'%tem MACS3+ ｷ The ne& %%et &i!! re#!ce n e(i%tin" %%et tht h%  t( *%i% of 8150000 8150000 nd cn *e *e %o!d %o!d on the %me %me Fnur' Fnur' 1 for 81@0000+ ｷ The #ro$ect i% e(#ected to #rovide dded nnu! %!e% of 70000 unit% t 820+ Addition! c%h o#ertin" co%t% re: vri*!e 812 #er unit; fi(ed 890000 #er 'er+ ｷ A 850000 &or)in" c#it! inve%tment tht i% fu!!' recover*!e t the end of the fourth 'er i% required+ Metro i% %u*$ect to  40< income t( rte nd round% !!

com#uttion% to the nere%t do!!r+ A%%ume tht n' "in or !o%% ffect% the t(e% #id t the end of the 'er in &hich it occurred+ The com#n' u%e% the net #re%ent v!ue method to n!'e inve%tment% nd &i!! em#!o' the fo!!o&in" fctor% nd rte%+ eriod ----1 2 7 4

re%ent !ue re%ent !ue of of 81 t 12< 81 Annuit' t 12< ------------- ----------------- ----0+@9 0+@9 77< 0+@0 1+69 45 0+=1 2+40 15 0+64 7+04 =

MACS

[15] Source: CMA 0697 4-22 efer% to ct ttern E13 The di%counted c%h f!o& for the fourth 'er MACS de#recition on the ne& %%et i% A+ 80+

A+ The #re%ent v!ue v!ue of n nnuit' due+

,+ 81=920+

,+ The #re%ent v!ue of n ordinr' nnuit'+

C+ 821504+

C+ The future v!ue of n nnuit' due+

/+ 826@@0+

/+ The future v!ue of n ordinr' nnuit'+ [14] Source: CMA 0697 4-20 Am%ter Cor#ortion h% not not 'et decided on it% it% hurd!e rte for u%e in the ev!ution of c#it! *ud"etin" #ro$ect%+ Thi% !c) of informtion &i!! #rohi*it Am%ter from c!cu!tin"  #ro$ect%

[16] Source: CMA 0697 4-27 efer% to ct ttern E13 The di%counted net-of-t( mount tht re!te% to di%#o%! of the e(i%tin" %%et i% A+ 816@000+ ,+ 8169720+

Accountin" et .ntern! te of eturn re%ent !ue te of eturn

C+ 81@0000+















net-of-t( contri*ution mr"in over 4 'er% of A+ 85=600+

de#recition &i!! *e u%ed; no %!v"e i% ntici#ted+ F%#er i% %u*$ect to  40< income t( rte+ To meet the com#n'% #'*c) "o! the %orter mu%t "enerte reduction% in nnu! c%h o#ertin" co%t% of

,+ 892160+ A+ 860000+ C+ 82=7600+ ,+ 8100000+ /+ 847==60+ C+ 8150000+ [1@] Source: CMA 0697 4-25 efer% to ct ttern E13 The over!! di%counted-c%h-f!o& im#ct of the &or)in" c#it! inve%tment on Metro% #ro$ect i%

/+ 8190000+ [27] Source: CMA 1297 4-11 .f n inve%tment #ro$ect h%  #rofit*i!it' inde( of 1+15 the

A+ 82@003+ A+ ro$ect% intern! intern! rte of return i% 15<+ 15<+ ,+ 81@0003+ C+ 8500003+ /+ 8592003+ [19] Source: CMA 0697 4-2= The #'*c) reci#roc! cn *e u%ed to ##ro(imte  #ro$ect% A+ rofit*i!it' inde(+ inde(+ ,+ et #re%ent v!ue+

,+ ro$ect% co%t of c#it! i% "reter thn it% intern! rte of return+ C+ ro$ect% intern! rte of return e(ceed% it% net #re%ent v!ue+ /+ et #re%ent v!ue of the #ro$ect i% #o%itive+ [24] Source: CMA 1297 4-12 The intern! rte of return for  #ro$ect cn *e determined A+ .f the intern! rte of return i% "reter thn the firm% co%t of c#it!+

C+ Accountin" Accountin" rte of return if the c%h f!o& #ttern i% re!tive!' %t*!e+

,+ n!' if the #ro$ect c%h f!o&% re con%tnt+

/+ .ntern! rte of return if the c%h f!o& #ttern i% re!tive!' %t*!e+

C+ ,' findin" the di%count rte tht 'ie!d%  net #re%ent v!ue of ero for the #ro$ect+

[20] Source: CMA 0697 4-2@ Bhen ev!utin" #ro$ect% *re)even time i% *e%t de%cri*ed % A+ Annu! Annu! fi(ed co%t% ・month!' contri*ution mr"in+

/+ ,' %u*trctin" the firm% co%t of c#it! from the #ro$ect% #rofit*i!it' inde(+ [25] Source: CMA 1297 4-14 A de#recition de#recition t( %hie!d i%

,+ ro$ect inve%tment ・nnu! net c%h inf!o&%+

A+ An fter-t( fter-t( c%h outf!o&+ outf!o&+

C+ The #oint &here cumu!tive c%h inf!o&% on  #ro$ect equ! tot! c%h outf!o&%+

,+ A reduction in income t(e%+ C+ The c%h #rovided *' recordin" de#recition+

/+ The #oint t &hich di%counted cumu!tive c%h inf!o&% on  #ro$ect equ! di%counted tot! c%h outf!o&%+ [21] Source: CMA 0697 4-29 !e( Cor#ortion i% %tud'in"  c#it! cqui%ition #ro#o%! in &hich ne&!' cquired %%et% &i!! *e de#recited u%in" the %tri"ht-!ine method+ Bhich one of the fo!!o&in" %ttement% *out the #ro#o%! &ou!d *e incorrect if  %&itch i% mde to the Modified Acce!erted Co%t ecover' S'%tem MACS3G

/+ The e(#en%e cu%ed *' de#recition+ [26] Source: CMA 1297 4-15 A com#n' com#n' h% un!imited un!imited c#it! fund% to to inve%t+ The deci%ion ru!e for the com#n' to fo!!o& in order to m(imie %hreho!der% &e!th i% to inve%t in !! #ro$ect% hvin" n3 A+ re%ent v!ue "reter "reter thn ero+ ,+ et #re%ent v!ue "reter thn ero+

A+ The net #re%ent #re%ent v!ue &i!! incre%e+ incre%e+ C+ .ntern! rte of return " reter thn ero+ ,+ The intern! rte of return &i!! incre%e+ C+ The #'*c) #eriod &i!! *e %hortened+

/+ Accountin" Accountin" rte of return "reter thn the hurd!e rte u%ed in c#it! *ud"etin" n!'%e%+















&ithout "enertin" uncce#t*!e re%u!t%+ C+ Simu!te #ro**i!i%tic cu%tomer rection% to  ne& #roduct+ /+ .dentif' the required mr)et %hre to m)e  ne& #roduct vi*!e nd #roduce cce#t*!e re%u!t%+

[77] Source: CMA 12== 5-14 /e#recition i% incor#orted e(#!icit!' in the di%counted c%h f!o& n!'%i% of n inve%tment #ro#o%! *ecu%e it A+ .%  co%t of o#ertion% o#ertion% tht cnnot *e voided+ voided+ ,+ .%  c%h inf!o&+ C+ educe% the c%h ou t!' for income t(e%+

[29] Source: CMA 1297 4-19 efer% to ct ttern E23 The net #re%ent v!ue for the inve%tment i%

/+ e#re%ent% the initi! c%h outf!o& %#red over the !ife of the inve%tment+

A+ 81@@00+ [74] Source: CMA 12=@ 5-@ Crco .nc+ &nt% to u%e di%counted c%h f!o& technique% &hen n!'in" it% c#it! inve%tment #ro$ect%+ The com#n' i% &re of the uncertint' invo!ved in e%timtin" future c%h f!o&%+ A %im#!e method %ome com#nie% em#!o' to d$u%t for the uncertint' inherent in their e%timte% i% to

,+ 821@@00+ C+ 8196200+ /+ 891=47+ [70] Source: CMA 1297 4-1= .f income t( con%idertion% re i"nored ho& i% de#recition hnd!ed *' the fo!!o&in" c#it! *ud"etin" technique%G

A+ re#re  direct n!'%i% n!'%i% of the #ro**i!it' #ro**i!it' of outcome%+

C+ Ad$u%t the minimum de%ired rte of return+

.ntern! Accountin" te of eturn te of eturn '*c) -------------- -------------- -------A+ ?(c!uded

.nc!uded

?(c!uded

.nc!uded

?(c!uded

.nc!uded

,+ C+ ?(c!uded

?(c!uded

.nc!uded

/+ .nc!uded

.nc!uded

,+ H%e cce!erted de#recition+

/+ .ncre%e the e%timte% of the c%h f!o&%+ [75] Source: CMA 12=@ 5-10 The ccountnt of onier .nc+ h% #re#red n n!'%i% of  #ro#o%ed c#it! #ro$ect u%in" di%counted c%h f!o& technique%+ ne mn"er h% que%tioned the ccurc' of the re%u!t% *ecu%e the di%count fctor% em#!o'ed in the n!'%i% hve %%umed the c%h f!o&% occurred t the end of the 'er &hen the c%h f!o&% ctu!!' occurred uniform!' throu"hout ech 'er+ The net #re%ent v!ue c!cu!ted *' the ccountnt &i!!

.nc!uded A+ ot *e in error+ error+

[71] Source: CMA 1297 4-20 The nnu! t( de#recition e(#en%e on n %%et reduce% income t(e% *' n mount equ! to A+ The firm% ver"e ver"e t( rte time% the de#recition mount+ ,+ ne minu% the firm% ver"e t( rte time% the de#recition mount+ C+ The firm% mr"in! t( rte time% the de#recition mount+ /+ ne minu% the firm% mr"in! t( rte time% the de#recition mount+ [72] Source: CMA 1297 4-21 Bhen determinin" net #re%ent v!ue in n inf!tionr' environment d$u%tment% %hou!d *e mde to A+ .ncre%e the di%count di%count rte on!'+ on!'+ ,+ .ncre%e the e%timted c%h inf!o&% nd incre%e

,+ ,e %!i"ht!' over%tted+ C+ ,e unu%*!e for ctu! deci%ion m)in"+ /+ ,e %!i"ht!' under%tted *ut u%*!e+ [76] Source: CMA 12=@ 5-12 uture .nc+ i% in the envi*!e %itution of hvin" un!imited c#it! fund%+ The *e%t deci%ion ru!e in n economic %en%e for it to fo!!o& &ou!d *e to inve%t in !! #ro$ect% in &hich the A+ Accountin" Accountin" rte of return i% "reter thn the ernin"% %  #ercent of %!e%+ ,+ '*c) reci#roc! i% "reter thn the intern! rte of return+ C+ .ntern! rte of return i% "reter thn ero+ /+ et #re%ent v!ue i% "reter thn ero+















,+ i%) n!'%i%+ C+ rofit*i!it' inde( method+ C+ Co%t *ehvior n!'%i%+ /+ Accountin" rte of return method+ /+ eturn on inve%tment n!'%i%+ n!'%i%+ [7@] Source: CMA 1290 4-17 The technique tht reco"nie% the time v!ue of mone' *' di%countin" the fter-t( c%h f!o&% for  #ro$ect over it% !ife to time # eriod ero u%in" the com#n'% minimum de%ired rte of return i% c!!ed the

[47] Source: CMA 1290 4-1@ Ii"h-Tech Ii"h-Tech .ndu%trie% i% con%iderin" the cqui%ition of  ne& %tte-of-the-rt mnufcturin" mchine to re#!ce  !e%% efficient mchine+ Ii-Tech Ii-Tech h% com#!eted  net #re%ent v!ue n!'%i% nd found it to *e fvor*!e+ Bhich one of the fo!!o&in" fctor% %hou!d not *e of concern to Ii-Tech Ii-Tech in it% cqui%ition con%idertion%G con%idertion%G

A+ et #re%ent v!ue v!ue method+ A+ The vi!*i!it' vi!*i!it' of n' nece%%r' nece%%r' finncin"+ finncin"+ ,+ '*c) method+ C+ Aver"e rte of return method+

,+ The #ro**i!it' of ner-term techno!o"ic! chn"e% to the mnufcturin" #roce%%+

/+ Accountin" rte of return method+

C+ The inve%tment t( credit+

[79] Source: CMA 1290 4-14 The technique tht ref!ect% the time v!ue of mone' nd i% c!cu!ted *' dividin" the #re%ent v!ue of the future net fter-t( c%h inf!o&% tht hve *een di%counted t the de%ired co%t of c#it! *' the initi! c%h out!' for the inve%tment i% c!!ed the A+ C#it! rtionin" rtionin" method+ ,+ Aver"e rte of return method+

/+ Mintennce requirement% &rrntie% nd vi!*i!it' of %ervice rr n"ement%+ [44] Source: CMA 0691 4-16 it"er!d Com#n' i% #!nnin" to cquire  8250000 mchine tht &i!! #rovide incre%ed efficiencie% there*' reducin" nnu! o#ertin" co%t% *' 8@0000+ The mchine &i!! *e de#recited *' the %tri"ht-!ine method over  5-'er !ife &ith no %!v"e v!ue t the end of 5 'er%+ A%%umin"  40< income t( rte the the mchine% #'*c) #'*c) #eriod i%

C+ rofit*i!it' inde( method+ A+ 7+17 'er%+ /+ Accountin" rte of return method+ ,+ 7+21 'er%+ [40] Source: CMA 1290 4-15 The technique tht me%ure% the e %timted #erformnce of  c#it! inve%tment *' dividin" the #ro$ect% nnu! fter-t( net income *' the ver"e inve%tment co%t i% c!!ed the A+ Aver"e Aver"e rte of return method+ ,+ .ntern! rte of return method+

C+ 7+6@ 'er%+ /+ 4+@1 'er%+ [45] Source: CMA 0691 4-1= C#it! *ud"etin" method% re often divided into t&o c!%%ifiction%: c!%%ifiction%: #ro$ect %creenin" nd #ro$ect rn)in"+ Bhich one of the fo!!o&in" i% con%idered  rn)in" method rther thn  %creenin" methodG

C+ C#it! %%et #ricin" mode!+ A+ et #re%ent v!ue+ v!ue+ /+ Accountin" rte of return method+ ,+ Time-d$u%ted Time-d$u%ted rte of return+ [41] Source: CMA 1290 4-16 The technique tht incor#orte% the time v!ue of mone' *' determinin" the com#ound intere%t rte of n inve%tment %uch tht the #re%ent v!ue of the fter-t( c%h inf!o&% over the !ife of the inve%tment i% equ! to the initi! inve%tment i% c!!ed the

C+ rofit*i!it' inde(+ /+ Accountin" rte of return+ [46] Source: CMA 0691 4-1@ The ccountin" rte of return

A+ .ntern! rte of return method+ method+ A+ .% %'non'mou% %'non'mou% &ith the intern! rte rte of return+ ,+ C#it! %%et #ricin" mode!+ ,+ ocu%e% on income % o##o%ed to c%h f!o&%+ C+ rofit*i!it' inde( method+ /+ Accountin" rte of return method+

C+ .% incon%i%tent &ith the divi%ion! #erformnce me%ure )no&n % return on inve%tment+ /+ eco"nie% the time v!ue of mone'+

[42] Source: CMA 1290 4-1=















C+ M' #roduce different different rn)in"% from the net #re%ent v!ue method on mutu!!' e(c!u%ive #ro$ect%+

The di%counted net-of-t( mount tht %hou!d *e fctored into Crne Com#n'% n!'%i% for the di%#o%! trn%ction i%

/+ Bou!d tend to *e reduced if  com#n' u%ed n cce!erted method of de#recition for t( #ur#o%e% rther thn the %tri"ht-!ine method+

A+ 845=60+ ,+ 860000+ C+ 86=040+

[4@] Source: CMA 0691 4-20 %t rei"ht .nc+ i% #!nnin" to #urch%e equi#ment to m)e it% o#ertion% more efficient+ Thi% equi#ment h% n e%timted !ife of 6 'er%+ A% #rt of thi% cqui%ition  8=5000 inve%tment in &or)in" c#it! i% ntici#ted+ .n  di%counted c%h f!o& n!'%i% the inve%tment in &or)in" c#it! A+ Shou!d *e mortied mortied over the u%efu! !ife of the equi#ment+ ,+ Cn *e di%re"rded *ecu%e no c%h i% invo!ved+ C+ Shou!d *e treted % n immedite c%h outf!o&+ outf!o&+

/+ 86@000+ [ct ttern E4] Di#nn Cor#ortion i% revie&in" n inve%tment #ro#o%!+ The initi! co%t % &e!! % other re!ted dt for ech 'er re #re%ented in the %chedu!e *e!o&+ A!! A!! c%h f!o&% re %%umed to t)e #!ce t the end of the 'er+ The The %!v"e v!ue of the inve%tment t the end of ech 'er i% equ! to it% net *oo) v!ue nd there &i!! *e no %!v"e v!ue t the end of the inve%tment% !ife+ .nve%tment ro#o%! Annu! .niti! Co%t et After-T( Annu! A nnu! Der nd  nd ,oo) !ue C%h !o&% et .ncome ---- --------------- ------------- ----------0 8105000 8 0 8 0 1 =0000 50000 15000 2 42000 45000 1=000 7 21000 40000 19000 4 =000 75000 21000 5 0 70000 27000

/+ Shou!d *e treted % n immedite c%h outf!o& tht i% !ter recovered t the end o f 6 'er%+ [ct ttern E7] n Fnur' 1 Crne Com#n' &i!! cquire  ne& %%et tht co%t% 8400000 nd i% ntici#ted to hve  %!v"e v!ue of 870000 t the end of 4 'er%+ The ne& %%et ｷ Ju!ifie% % 7-'er #ro#ert' under the Modified Acce!erted Co%t ecover' S'%tem MACS3+ ｷ Bi!! re#!ce n o!d %%et tht current!' h%  t( *%i% of 8@0000 nd cn *e *e %o!d no& for 860000+ ｷ Bi!! continue to "enerte the %me o#ertin" revenue% % the o!d %%et 8200000 8200000 #er 'er3+ Io&ever %vin"% in in o#ertin" co%t% &i!! *e e(#erienced e(#erienced % fo!!o&%: fo!!o&%:  tot! of 8120000 in ech ech of the fir%t 7 'er% nd 890000 890000 in the fourth 'er+ 'er+ Crne i% %u*$ect to  40< t( rte nd round% !! com#uttion% to the nere%t do!!r+ A%%ume tht n' "in or !o%% ffect% the t(e% #id t the end of the 'er in &hich it occurred+ The com#n' u%e% the net #re%ent v!ue method to n!'e #ro$ect% u%in" the fo!!o&in" fctor% nd rte%:

re%ent !ue re%ent !ue of eriod of 81 t 14< 81 Annuit' t 14< MACS ----------- ------------- ----------------- ----1 +@@ +@@ 77< 2 +== 1+65 45 7 +6@ 2+77 15 4 +59 2+92 = [49] Source: CMA 0691 4-21 efer% to ct ttern E73 The #re%ent v!ue of the de#recition t( %hie!d for the fourth 'er MACS de#recition of Crne Com#n'% ne& %%et i% A+ 80+ ,+ 86112+

Di#nn u%e%  24< fter-t( tr"et rte of return for ne& inve%tment #ro#o%!%+ The di%count fi"ure% for  24< rte of return re "iven+ re%ent !ue of re%ent !ue !ue of n Annuit' of 81+00 81+00 eceived t eceived t the ?nd Der the ?nd of eriod of ?ch eriod ---- ----------------- ------------------1 +@1 +@1 2 +65 1+46 7 +52 1+9@ 4 +42 2+40 5 +74 2+=4 6 +2@ 7+02 = +22 7+24 [51] Source: CMA 1291 4-1 efer% to ct ttern E43 The trdition! #'*c) #eriod for the inve%tment #ro#o%! i% A+ +@=5 'er%+ ,+ 1+977 'er%+ C+ 2+250 'er%+ /+ ver 5 'er%+ [52] Source: CMA 1291 4-2 efer% to ct ttern E43 The ver"e nnu! c%h inf!o& t &hich Di#nn &ou!d *e indifferent to the inve%tment rounded to the nere%t do!!r3 i%

















/+ 84666=+ [57] Source: CMA 1291 4-7 efer% to ct ttern E43 The ccountin" rte of return for the inve%tment #ro#o%! over it% !ife u%in" the initi! v!ue of the inve%tment i% A+ 76+2<+ ,+ 1@+1<+ C+ 2@+1<+ /+ 7@+1<+ [54] Source: CMA 1291 4-4 efer% to ct ttern E43 The net #re%ent v!ue of the inve%tment #ro#o%! i%

ro$ect  ro$ect J ro$ect  ro$ect S --------- --------- --------- --------8200000 8275000 8190000

.niti! co%t 8210000 Annu! c%h f!o&% f!o&% Der 1 897000 890000 845000 840000 Der 2 97000 @5000 55000 50000 Der 7 97000 =5000 65000 60000 Der 4 -055000 =0000 65000 Der 5 -050000 =5000 =5000 et #re%ent v!ue 8277=0 829@2= 82=777 8=@543 .ntern! rte of return 1@+=< 1=+6< 1=+2< 10+6< ?(ce%% #re%ent v!ue inde( 1+12 1+17 1+14 0+96 [5=] Source: CMA 1291 4-@ efer% to ct ttern E53 /urin" thi% 'er Merc)en &i!! choo%e

A+ 84600+

A+ ro$ect%   J nd +

,+ 810450+

,+ ro$ect%  J  nd S+

C+ 8552@03+

C+ ro$ect% J nd +

/+ 8115450+

/+ ro$ect%  nd J+

[55] Source: CMA 1291 4-6 Bhen rn)in" t&o mutu!!' e(c!u%ive inve%tment% &ith different initi! mount% mn"ement %hou!d "ive fir%t #riorit' to the #ro$ect A+ Tht "enerte% c%h f!o&% for the !on"er #eriod of time+ ,+ Bho%e net fter-t( f!o&% equ! the initi! inve%tment+ C+ Tht h% the "reter ccountin" rte of return+ /+ Tht h% the "reter #rofit*i!it' inde(+ [56] Source: CMA 1291 4-= The net #re%ent v!ue 3 method nd the intern! rte of return .3 method re u%ed to n!'e c#it! e(#enditure%+ The . method % contr%ted &ith the  method A+ .% con%idered inferior inferior *ecu%e it fi!% fi!% to c!cu!te c!cu!te com#ounded intere%t rte%+

[5@] Source: CMA 1291 4-9 efer% to ct ttern E53 .f Merc)en i% *!e to cce#t on!' one #ro$ect the com#n' &ou!d choo%e A+ ro$ect + + ,+ ro$ect J *ecu%e it h% the hi"he%t net #re%ent v!ue+ C+ ro$ect  *ecu%e it h% the hi"he%t intern! rte of return+ /+ ro$ect  *ecu%e it h% the %horte%t #'*c) #eriod+ [59] Source: u*!i%her C#it! *ud"etin" i% concerned &ith A+ /eci%ion% ffectin" ffectin" on!' c#it! c#it! inten%ive indu%trie%+ indu%trie%+ ,+ An!'%i% of %hort-rn"e deci%ion%+ C+ An!'%i% of !on"-rn"e deci%ion%+

,+ .ncor#orte% the time v!ue of mone' &here% the

















De%

De%

o

 A ｳ -------------- ｳｳｳ i ﾀ

,+ De%

o

De%

o

De%

o

o

o

De%

C+ /+

ﾙ

[65] Source: u*!i%her The di%count rte ordinri!' u%ed in #re%ent v!ue c!cu!tion% i% the A+ eder! e%erve rte+

[62] Source: u*!i%her The #re%ent v!ue m' *e c!cu!ted for di%counted c%h .nf!o&%

,+ Tre%ur' *i!! rte+ C+ Minimum de%ired rte of return %et *' the firm+ /+ rime rte+

utf!o&% Annuitie% [66] Source: u*!i%her The *i!out #'*c) method

------A+

--------

---------

De%

De%

De%

A+ .% u%ed *' firm% firm% &ith feder!!' in%ured in%ured !on%+

,+ De%

o

De%

,+ C!cu!te% the #'*c) #eriod u%in" the %um of the net c%h f!o&% nd the %!v"e v!ue+

o

De%

o

C+ C!cu!te% the #'*c) #eriod u%in" the difference *et&een net c%h inf!o& nd the %!v"e v!ue+

o

o

De%

C+ /+

/+ ?%timte% %hort-term #rofit*i!it'+ #rofit*i!it'+

[67] Source: u*!i%her uture v!ue i% *e%t de%cri*ed % A+ The %um of do!!r%-in di%counted di%counted to time ero+ ,+ The %um of do!!r%-out di%counted to time ero+ C+ The v!ue of  do!!r-in t  future time d$u%ted for n' com#oundin" effect /+ The v!ue of  do!!r-in t  future time d$u%ted for n' com#oundin" effect nd the v!ue of  do!!r-out t  future time d$u%ted for n' com#oundin" effect+ [64] Source: u*!i%her Bhich formu! i% u%ed to determine the future v!ue tht &i!! *e vi!*!e if  "iven mount of mone' i% inve%tedG A+

[6=] Source: CMA 12@@ 1-2 Bhich of the fo!!o&in" i% true re"rdin" the c!cu!tion of  firm% co%t of c#it!G A+ The co%t of of c#it! of  firm i% i% the &ei"hted-ver"e co%t of it% vriou% finncin" com#onent%+ ,+ A!! co%t% %hou!d *e e(#re%%ed % #re-t( co%t%+ C+ The time v!ue of mone' %hou!d *e e(c!uded from the c!cu!tion%+ c!cu!tion%+ /+ The co%t of c#it! i% the co%t of equit'+ equit'+ [6@] Source: CMA 1291 1-@ The firm% mr"in! co%t of c#it! A+ Shou!d *e the %me %me % the firm% rte rte of return on equit'+ ,+ .% unffected *' the firm% c#it! %tructure+

















/+ Current H+S+ H+S+ tre%ur' *ond 'ie!d 'ie!d nd the the dividend dividend #'out rtio+ [=0] Source: CMA 12@@ 1-7 .f ) i% the co%t of de*t nd t i% the mr"in! t( rte the fter-t( co%t of de*t )  i% *e%t re#re%ented *' the formu! i A+ )  ) ・t+ i ,+ )  ) ・1-t3+ i C+

[ct ttern E6] The t( im#ct of equi#ment de#recition ffect% c#it! *ud"etin" deci%ion%+ Current!' the Modified Acce!erted Co%t ecover' S'%tem MACS3 i% u%ed % the de#recition method for mo%t %%et% for t( #ur#o%e%+ [=4] Source: CMA 0694 4-17 efer% to ct ttern E63 The MACS method of de#recition for %%et% &ith 7 5 = nd 10-'er recover' #eriod% i% mo%t %imi!r to &hich one of the fo!!o&in" de#recition method% u%ed for finnci! re#ortin" #ur#o%e%G A+ Stri"ht-!ine+ ,+ Hnit%-of-#roduction+

)  )t3+ i /+

C+ Sum-of-the-'er%-di"it%+ Sum-of-the-'er%-di"it%+ /+ 200< dec!inin"-*!nce+ dec!inin"-*!nce+

)  )1-t3+ i [=1] Source: CMA 06@9 1-25 A!! of the fo!!o&in" fo!!o&in" re e(m#!e% of im#uted im#uted co%t% e(ce#t e(ce#t

[=5] Source: CMA 0694 4-14 efer% to ct ttern E63 Bhen em#!o'in" the MACS method of de#recition in  c#it! *ud"etin" deci%ion the u%e of MACS % com#red &ith the %tri"ht-!ine method of de#recition &i!! re%u!t in

A+ The %tted intere%t intere%t #id on  *n) !on+ A+ ?qu! tot! de#recition de#recition for *oth method%+ method%+ ,+ A%%et% tht re con%idered o*%o!ete tht mintin  net *oo) v!ue+

,+ MACS #roducin" !e%% tot! de#recition thn %tri"ht !ine+

C+ /ece!erted de#recition+ /+ Kendin" fund% to  %u##!ier t  !o&er-thn-mr)et rte in e(chn"e for receivin" the %u##!ier% #roduct% t  di%count+ [=2] Source: CMA 0690 1-1@ /tcom# .ndu%trie% &hich h% no current de*t h%  *et of +95 for it% common %toc)+ Mn"ement i% con%iderin"  chn"e in the c#it! %tructure to 70< de*t nd =0< equit'+ equit'+ Thi% chn"e &ou!d incre%e the * et on the %toc) to 1+05 nd the fter-t( co%t of de*t &i!! *e =+5<+ The e(#ected return on equit' i% 16< nd the ri%)-free rte i% 6<+ Shou!d /tcom#% mn"ement #roceed &ith the c#it! %tructure chn"eG A+ o *ecu%e the co%t co%t of equit' c#it! c#it! &i!! incre%e+

C+ ?qu! tot! t( #'ment% fter di%countin" for the time v!ue of mone'+ /+ MACS #roducin" more tot! de#recition thn %tri"ht !ine+ [=6] Source: CMA 0694 4-15 A!! of the fo!!o&in" fo!!o&in" re the rte% u%ed in in net #re%ent v!ue n!'%i% e(ce#t for the A+ Co%t of c#it!+ c#it!+ ,+ Iurd!e rte+ C+ /i%count rte+ /+ Accountin" rte of return+

,+ De% *ecu%e the co%t of equit' c#it! &i!!

















,+ e"!ect% e"!ect% tot! #ro$ect #rofit*i!it' #rofit*i!it'++ C+ H%e% ccru! ccountin" inf!o&% in the numertor of the c!cu!tion+ /+ H%e% the e%timted e(#ected !ife of the %%et in the denomintor of the c!cu!tion+

/+ '*c) method+ [@4] Source: CMA 1294 4-24 The method tht divide%  #ro$ect% nnu! fter-t( net income *' the ver"e inve%tment co%t to me%ure the e%timted #erformnce of  c#it! inve%tment i% the A+ .ntern! rte of return method+ method+

[=9] Source: CMA 0694 4-1@ A!! of the fo!!o&in" fo!!o&in" item% re inc!uded inc!uded in di%counted di%counted c%h f!o& n!'%i% e(ce#t

,+ Accountin" rte of return method+ C+ '*c) method+

A+ uture o#ertin" c%h c%h %vin"%+ /+ et #re%ent v!ue 3 method+ ,+ The current %%et di%#o%! #rice+ C+ The future %%et de#recition e(#en%e+ /+ The t( effect% of future %%et de#recition+

[@5] Source: CMA 1294 4-25 The c#it! *ud"etin" mode! tht i% "ener!!' con%idered the *e%t mode! for !on"-rn"e deci%ion m)in" i% the A+ '*c) mode!+ mode!+

[@0] Source: CMA 1294 4-20 The !en"th of time required to recover the initi! c%h out!' of  c#it! #ro$ect i% determined *' u%in" the

,+ Accountin" rte of return mode!+ C+ Hnd$u%ted rte of return mode!+

A+ /i%counted c%h c%h f!o& method+ /+ /i%counted c%h f!o& mode!+ ,+ '*c) method+ C+ Bei"hted net #re%ent v!ue method+ /+ et #re%ent v!ue method+ [@1] Source: CMA 1294 4-21 .n ev!utin"  c#it! *ud"et #ro$ect the u%e of the net #re%ent v!ue 3 mode! i% "ener!!' not ffected *' the

[@6] Source: CMA 1294 4-26 The technique u%ed to ev!ute !! #o%%i*!e c#it! #ro$ect% of different do!!r mount% nd then rn) them ccordin" to their de%ir*i!it' i% the A+ rofit*i!it' inde( inde( method+ ,+ et #re%ent v!ue method+

A+ Method of fundin" the the #ro$ect+

C+ '*c) method+

,+ .niti! co%t of the #ro$ect+

/+ /i%counted c%h f!o& method+

C+ Amount of dded &or)in" c#it! needed for o#ertion% durin" the term of the #ro$ect+ /+ ro$ect% %!v"e v!ue+ [@2] Source: CMA 1294 4-22 or c#it! *ud"etin" #ur#o%e% mn"ement &ou!d %e!ect  hi"h hurd!e rte of r eturn for certin #ro$ect% *ecu%e mn"ement

[@=] Source: CMA 1294 4-2= A &ide!' &ide!' u%ed ##roch tht i% u%ed to reco"nie reco"nie uncertint' *out individu! economic vri*!e% &hi!e o*tinin" n immedite finnci! e%timte of the con%equence% of #o%%i*!e #rediction error% i% A+ ?(#ected v!ue v!ue n!'%i%+ ,+ Kernin" curve n!'%i%+

A+ Bnt% to u%e equit' fundin" fundin" e(c!u%ive!'+ e(c!u%ive!'+

















A+ 872=@ [@9] Source: CMA 0695 4-2 Sen%itivit' n!'%i% if u%ed &ith c#it! #ro$ect% A+ .% u%ed e(ten%ive!' e(ten%ive!' &hen c%h c%h f!o&% re )no&n &ith certint'+

,+ 85@42 C+ 856@3 /+ 870910

,+ Me%ure% the chn"e in the di%counted c%h f!o&% &hen u%in" the di%counted #'*c) method rther thn the net #re%ent v!ue method+ C+ .%  N&ht-ifN technique tht %)% ho&  "iven outcome &i!! chn"e if the ori"in! e%timte% of the c#it! *ud"etin" mode! re chn"ed+ /+ .%  technique u%ed to rn) c#it! e(#enditure reque%t%+

[97] Source: CMA 0695 4-6 efer% to ct ttern E=3 The #'*c) #eriod for thi% inve%tment &ou!d *e A+ 1+@@ 'er%+ ,+ 7+00 'er%+ C+ 2+27 'er%+

[90] Source: CMA 0695 4-7 The u%e of n cce!erted method in%ted of the %tri"ht-!ine method of de#recition in com#utin" the net #re%ent v!ue of  #ro$ect h% the effect of A+ i%in" the hurd!e hurd!e rte nece%%r' to $u%tif' the #ro$ect+ ,+ Ko&erin" the net #re%ent v!ue of the #ro$ect+ C+ .ncre%in" the #re%ent v!ue of the de#recition t( %hie!d+ /+ .ncre%in" the c%h outf!o&% t the initi! #oint of the #ro$ect+ [91] Source: CMA 0695 4-4 The #rofit*i!it' inde( #re%ent v!ue inde(3 A+ e#re%ent% the rtio rtio of the di%counted di%counted net c%h outf!o&% to c%h inf!o&%+ ,+ .% the re!tion%hi# *et&een the net di%counted c%h inf!o&% !e%% the di%counted c%h outf!o&% divided *' the di%counted c%h outf!o&%+ C+ .% c!cu!ted *' dividin" the di%counted #rofit% *' the c%h outf!o&%+ /+ .% the rtio of the di%counted net c%h inf!o&% to di%counted c%h outf!o&%+

/+ 1+62 'er%+ [ct ttern E@] C#it! .nve%t .nc+ u%e%  12< hurd!e rte for !! c#it! e(#enditure% nd h% done the fo!!o&in" n!'%i% for four #ro$ect% for the u#comin" 'er+ ro$ect 1 ro$ect 2 ro$ect 7 ro$ect 4 --------- --------- --------- --------.niti! c#it! out!' 8200000 829@000 824@000 82=2000 Annu! net c%h inf!o&% inf!o&% Der 1 8 65000 8100000 8 @0000 8 95000 Der 2 =0000 175000 95000 125000 Der 7 @0000 90000 90000 90000 Der 4 40000 65000 @0000 60000 et #re%ent v!ue 7=9@3 42=6 14064 14662 rofit*i!it' .nde( 9@< 101< 106< 105< .ntern! rte of return 11< 17< 14< 15< [94] Source: CMA 0695 4-= efer% to ct ttern E@3 Bhich #ro$ect%3 %hou!d C#it! .nve%t .nc+ undert)e durin" the u#comin" 'er %%umin" it h% no *ud"et re%triction%G A+ A!! of the #ro$ect%+ ,+ ro$ect% 1 2 nd 7+ C+ ro$ect% 2 7 nd 4+

[ct ttern E=] McKen .nc+ i% con%iderin" the #urch%e of  ne& mchine

/+ ro$ect% 1 7 nd 4+



















A+ ro$ect 1+

C+ Com#re the intern! rte of re turn from ech c%h f!o& to it% ri%)+

,+ ro$ect% 2 7 nd 4+ C+ ro$ect% 7 nd 4+

/+ /i%count ech c%h f!o& u%in"  di%count rte tht ref!ect% the de"ree of ri%)+

/+ ro$ect 7+ [ct ttern E9] The Moore Cor#ortion i% con%iderin" the cqui%ition of  ne& mchine+ The mchine cn *e #urch%ed for 890000; it &i!! co%t 86000 to trn%#ort to Moore% #!nt nd 89000 to in%t!!+ .t i% e%timted tht the mchine &i!! !%t 10 'er% nd it i% e(#ected to hve n e%timted %!v"e v!ue of 85000+ ver it% 10-'er !ife the mchine i% e(#ected to #roduce 2000 unit% #er 'er &ith  %e!!in" #rice of 8500 nd com*ined mteri! nd !*or co%t% of 8450 #er unit+ eder! t( re"u!tion% #ermit mchine% of thi% t'#e to *e de#recited u%in" the %tri"ht-!ine method over 5 'er% &ith no e%timted %!v"e v!ue+ Moore h%  mr"in! t( rte of 40<+ [9=] Source: CMA 1295 4-7 efer% to ct ttern E93 Bht i% the net c%h outf!o& t the *e"innin" of the fir%t 'er tht Moore Cor#ortion %hou!d u%e in  c#it! *ud"etin" n!'%i%G A+ 8@50003

[101] Source: CMA 1295 4-= The  of  #ro$ect h% *een c!cu!ted to *e 8215000+ Bhich one of the fo!!o&in" chn"e% in %%um#tion% &ou!d decre%e the G A+ /ecre%e the e%timted e%timted effective income income t( rte+ ,+ /ecre%e the initi! inve%tment mount+ C+ ?(tend the #ro$ect !ife nd %%ocited c%h inf!o&%+ /+ .ncre%e the di%count rte+ [102] Source: CMA 1295 4-@ K&%on .nc+ i% e(#ndin" it% mnufcturin" #!nt &hich require% n inve%tment of 84 mi!!ion in ne& equi#ment nd #!nt modifiction%+ K&%on% %!e% re e(#ected to incre%e *' 87 mi!!ion #er 'er %  re%u!t of the e(#n%ion+ C%h inve%tment in current %%et% ver"e% 70< of %!e%; ccount% #'*!e nd other current !i*i!itie% re 10< of %!e%+ Bht i% the e%timted tot! inve%tment for thi% e(#n%ionG

,+ 8900003 A+ 87+4 mi!!ion+ C+ 8960003 ,+ 84+7 mi!!ion+ /+ 81050003 C+ 84+6 mi!!ion+ [9@] Source: CMA 1295 4-4 efer% to ct ttern E93 Bht i% the net c%h f!o& for the third 'er tht Moore Cor#ortion %hou!d u%e in  c#it! *ud"etin" n!'%i%G

/+ 84+9 mi!!ion+ [107] Source: CMA 1295 4-9



















C+ 8960=0 /+ 810=500 [105] Source: CMA 1295 4-1 Bhich one of the fo!!o&in" %ttement% *out the #'*c) method of inve%tment n!'%i% i% correctG The #'*c) method

5

0+50

7+76

[10@] Source: CMA 1295 4-12 efer% to ct ttern E103 The net #re%ent v!ue of thi% inve%tment i% A+ e"tive 864000+ 864000+ ,+ e"tive 814000+

A+ /oe% not con%ider con%ider the time v!ue of mone' mone'++

C+ o%itive 81@600+

,+ Con%ider% c%h f!o&% fter the #'*c) h% *een reched+

/+ o%itive 8200000+

C+ H%e% di%counted c%h f!o& technique%+ /+ >ener!!' !ed% to the %me deci%ion % other method% for !on"-term #ro$ect%+

[109] Source: CMA 1295 4-17 efer% to ct ttern E103 Bht i% the #'*c) #eriod of thi% inve%tmentG A+ 1+50 'er%+

[106] Source: CMA 1295 4-2 ,r)er .nc+ h% no c#it! rtionin" con%trint nd i% n!'in" mn' inde#endent inve%tment !terntive%+ ,r)er %hou!d cce#t !! inve%tment #ro#o%!%

,+ 7+00 'er%+ C+ 7+77 'er%+ /+ 4+00 'er%+

A+ .f de*t finncin" finncin" i% vi!*!e for for them+ ,+ Tht hve #o%itive c%h f!o&%+ C+ Tht #rovide return% "reter thn the *efore-t( co%t of de*t+

[110] Source: CMA 1295 4-14 The net #re%ent v!ue of  #ro#o%ed inve%tment i% ne"tive; therefore the di%count rte u%ed mu%t *e A+ >reter thn the #ro$ect% #ro$ect% intern! rte of return+ return+

/+ Tht hve  #o%itive net #re%ent v!ue+ ,+ Ke%% thn the #ro$ect% intern! rte of return+ [10=] Source: CMA 1295 4-11 Bhich one of the fo!!o&in" %ttement% concernin" c%h f!o& determintion for c#it! *ud"etin" #ur#o%e% i% not correctG A+ T( T( de#recition mu%t mu%t *e con%idered *ecu%e *ecu%e it ffect% c%h #'ment% for t(e%+

C+ >reter thn the firm% co%t of equit'+ equit'+ /+ Ke%% thn the ri%)-free rte+ [111] Source: CMA 1295 4-15 Oore .ndu%trie% i% n!'in"  c#it! inve%tment #ro#o%!



















[117] Source: CMA 1295 4-1= The term tht refer% to co%t% incurred in the #%t tht re not re!evnt to  future deci%ion i%

The net #re%ent v!ue for the inve%tment #ro#o%! i% A+ 8106160

A+ /i%cretionr' co%t+ co%t+

,+ 89=9=03

,+ u!! *%or#tion co%t+

C+ 8756160

C+ Hnder!!octed indirect co%t+

/+ 896560

/+ Sun) co%t+ [114] Source: CMA 1295 4-22 .n equi#ment-re#!cement deci%ion% &hich one of the fo!!o&in" doe% not ffect the deci%ion-m)in" #roce%%G

[11=] Source: CMA 0696 4-25 efer% to ct ttern E113 The trdition! #'*c) #eriod for the inve%tment #ro#o%! i% A+ ver 5 'er%+

A+ Current di%#o%! #rice #rice of the o!d equi#ment+ equi#ment+ ,+ 2+27 'er%+ ,+ #ertin" co%t% of the o!d equi#ment+ C+ 1+65 'er%+ C+ ri"in! fir mr)et v!ue of the o!d equi#ment+ /+ 2+@7 'er%+ /+ Co%t of the ne& equi#ment+ [ct ttern E11] Fore!!e Com#n'% finnci! %tff h% *een reque%ted to revie&  #ro#o%ed inve%tment in ne& c#it! equi#ment+ A##!ic*!e finnci! finnci! dt i% #re%ented #re%ented *e!o&+ *e!o&+ There &i!! *e *e no %!v"e v!ue t the end of the inve%tment% inve%tment% !ife nd due to re!i%tic de#recition #rctice% it i% e%timted tht the %!v"e v!ue nd net *oo) v!ue re equ! t the end of ech 'er+ A!! c%h f!o&% re %%umed to t)e #!ce t the end of ech 'er+ or inve%tment #ro#o%!% Fore!!e u%e%  12< fter-t( tr"et rte of return+ .nve%tment ro#o%! urch%e Co%t Annu! et Annu! Der nd ,oo) !ue After-T( Aft er-T( C%h !o&% et .ncome ---- -------------- -------------------- ---------0 8250000 8 0 8 0

[11@] Source: CMA 0696 4-26 Bhich one of the fo!!o&in" c#it! inve%tment ev!ution method% doe% not t)e the time v!ue of mone' into con%idertionG A+ et #re%ent v!ue+ v!ue+ ,+ /i%counted #'*c)+ C+ .ntern! rte of return+ /+ Accountin" rte of return+ [119] Source: CMA 1296 4-17 Bhtne' Co+ i% con%iderin" the cqui%ition of  ne& more efficient #re%%+ The co%t of the #re%% i% 8760000 nd the #re%% h% n e%timted 6-'er !ife &ith ero %!v"e v!ue+



















effective Fnur' 1+ The fo!!o&in" informtion i% *ein" con%idered *' >unnin" .ndu%trie%: ｷ The ne& mchine &ou!d *e #urch%ed for 8160000 in c%h+ Shi##in" in%t!!tion in%t!!tion nd te%tin" &ou!d co%t n ddition! ddition! 870000+ ｷ The ne& mchine i% e(#ected to incre%e nnu! %!e% *' 20000 unit% t  %!e% #rice of 840 840 #er unit+ .ncrement! o#ertin" co%t% inc!ude inc!ude 870 #er unit in vri*!e co%t% nd tot! fi(ed co%t% co%t% of 840000 #er 'er+ 'er+ ｷ The inve%tment in the ne& mchine &i!! require n immedite incre%e in &or)in" c#it! c#it! of 875000+ Thi% c%h c%h outf!o& &i!! *e recovered recovered t the end of 'er 5+ ｷ >unnin" u%e% %tri"ht-!ine de#recition for finnci! re#ortin" nd t( re#ortin" re#ortin" #ur#o%e%+ The ne& mchine h% n e%timted u%efu! !ife !ife of 5 'er% nd ero %!v"e v!ue+ ｷ >unnin" i% %u*$ect to  40< cor#orte income t( rte+ >unnin" u%e% the net #re%ent v!ue method to n!'e inve%tment% nd &i!! em#!o' the fo!!o&in" fctor% nd rte%:

The over!! di%counted c%h f!o& im#ct of >unnin" .ndu%trie% &or)in" c#it! inve%tment for the ne& #roduction mchine &ou!d *e A+ 8=9593 ,+ 8100@03 C+ 8172653 /+ 8750003 [125] Source: u*!i%her Bht i% the time v!ue of mone'G A+ .ntere%t+ ,+ re%ent v!ue+ C+ uture v!ue+ /+ Annuit'+

re%ent !ue r e%ent !ue of n rdinr' eriod of 81 t 10< Annuit' of 81 t 10< ------ ------------- ---------------------------1 +909 +909 2 +@26 1+=76 7 +=51 2+4@= 4 +6@7 7+1=0 5 +621 7+=91 [121] Source: CMA 1296 4-15 efer% to ct ttern E123 >unnin" .ndu%trie% net c%h outf!o& in  c#it! *ud"etin" deci%ion i%

[126] Source: u*!i%her Bhich of the fo!!o&in" i%  %erie% of equ! #'ment% t equ! interv!% of time &ith ech #'ment mde received3 t the *e"innin" of ech time #eriodG A+ rdinr' nnuit'+ nnuit'+ ,+ Annuit' in rrer%+ C+ Annuit' due+ /+ 'ment% in dvnce+

A+ 8190000 ,+ 8195000 C+ 8204525

[12=] Source: C.A 0592 .-57 The re!tion%hi# *et&een the #re%ent v!ue of  future %um nd the future v!ue of  #re%ent %um cn *e e(#re%%ed in term% of their re%#ective intere%t fctor%+ .f the #re%ent



















.n the determintion of  #re%ent v!ue &hich of the fo!!o&in" re!tion%hi#% i% correctG

C+ 897@10+05 /+ 8201094+14

A+ The !o&er the the di%count rte nd the the %horter the di%count #eriod the !o&er the #re%ent v!ue+ ,+ The !o&er the future c%h f!o& nd the %horter the di%count #eriod the !o&er the #re%ent v!ue+ C+ The hi"her the di%count rte nd the !on"er the di%count #eriod the !o&er the #re%ent v!ue+ /+ The hi"her the future c%h f!o& nd the !on"er the di%count #eriod the !o&er the #re%ent v!ue+ [170] Source: C.A 1192 .-55 A com#n' com#n' #!n% to #urch%e #urch%e  mchine &ith the the fo!!o&in" condition%: ｷ urch%e #rice #rice  8700000+ ｷ The do&n #'ment #'ment  10< of #urch%e #urch%e #rice &ith

reminder finnced t n nnu! intere%t intere%t rte of 16<+ ｷ The finncin" finncin" #eriod i% @ 'er% &ith &ith equ! nnu! #'ment% mde ever' 'er+ ｷ The #re%ent v!ue v!ue of n nnuit' of 81 #er 'er for @ 'er% t 16< i% 4+7476+ ｷ The #re%ent v!ue v!ue of 81 due t the end of @ 'er% t 16< i% +7050+ The nnu! #'ment rounded to the nere%t do!!r3 i% A+ 879150 ,+ 847200 C+ 862160 /+ 8@2750

[177] Source: C.A 1197 .-40 A #en%ion #en%ion fund i% #ro$ectin" #ro$ectin" the mount nece%%r' nece%%r' tod' to fund  retiree% #en%ion *enefit%+ The retiree% fir%t nnu! #en%ion chec) &i!! *e in 10 'er%+ 'ment% re e(#ected to !%t for  tot! of 20 nnu! #'ment%+ Bhich of the fo!!o&in" *e%t de%cri*e% the com#uttion of the mount needed tod' to fund the retiree% nnuit'G A+ re%ent v!ue of of 81 for 10 #eriod% time% time% the #re%ent v!ue of n ordinr' nnuit' of 20 #'ment% time% the nnu! nnuit' #'ment+ ,+ re%ent v!ue of 81 for nine # eriod% time% the #re%ent v!ue of n ordinr' nnuit' of 20 #'ment% time% the nnu! nnuit' #'ment+ C+ uture v!ue of 81 for 10 #eriod% time% the #re%ent v!ue of n ordinr' nnuit' of 20 #'ment% time% the nnu! nnuit' #'ment+ /+ uture v!ue of 81 for nine #eriod% time% the #re%ent v!ue of n ordinr' nnuit' of 20 #'ment% time% the nnu! nnuit' #'ment+ [174] Source: C.A 1192 .-79 An ctur' h% determined determined tht  com#n' %hou!d hve 890000000 ccumu!ted in it% #en%ion fund 20 'er% from no& in order for the fund to *e *!e to meet it% o*!i"tion%+ An intere%t rte of @< i% con%idered ##ro#rite for !! #en%ion fund c!cu!tion% invo!vin" invo!vin" n intere%t com#onent+ The com#n' &i%he% to c!cu!te ho& much it %hou!d contri*ute to the #en%ion fund t the end of ech of the ne(t 20 'er% in order for the #en%ion fund to hve it% required *!nce in 20 'er%+ A%%ume 'ou re "iven the fo!!o&in" t&o fctor% from #re%ent v!ue nd future v!ue t*!e%:





















C+ 81@=5 ( 5+77  89994; 81@=5 - 8999 8999  8@=6; 8@=6; 89994 - 8@=6  8911@ /+ 81@=5 ( @  815000; 815000 - 81@=5 815003  814625 [ct ttern E17] re%ent v!ue mount of 81 nd ordinr' nnuit' informtion re #re%ented *e!o&+ A!! v!ue% re for four #eriod% &ith n intere%t rte of @<+ Amount of 81 +76 re%ent v!ue of 81 0+=4 Amount of n ordinr' nnuit' of 81 4+51 re%ent v!ue of n ordinr' nnuit' of 81 7+71 [176] Source: C.A 05@2 .-4 efer% to ct ttern E173 Fim >reen decide% to crete  fund to ern @< com#ounded nnu!!' tht &i!! en*!e him to &ithdr& 85000 #er 'er ech Fune 70 *e"innin" in 'er 5 nd continuin" throu"h 'er 9+ Fim &i%he% to m)e equ! contri*ution% on Fune 70 of ech of the 'er% 'er 1 throu"h 'er 4+ Bhich eqution &ou!d *e u%ed to com#ute the *!nce &hich mu%t *e in the fund on Fune 70 'er 4 for Fim to %ti%f' hi% o*$ectiveG A+ 8P  85000 ( 7+71 7+71

ﾚｿｳ 1 - 11 L i3 ・ A ｳ --------------ｳｳｳ i ﾀﾙ

[179] Source: u*!i%her The fo!!o&in" formu!% re re!evnt to thi% que%tion: n .+   A1 L i3L A1 L i3ｲ L +++ L A1 L i3 n-1 ..+   A1 L i3 L +++ L A1 L i3 L A Io& i% the fo!!o&in" eqution for the future v!ue of  n nnuit' derivedG ﾚｿｳ 1 L i3・- 1 ｳ   A ｳ --------------- ｳｳｳ i ﾀﾙ

A+ Mu!ti#!' ?qution . *' 11 L i3i3 nd %u*trct the #roduct from ?qution ..+ ,+ Mu!ti#!' ?qution .. *' 1 L i3 nd %u*trct the #roduct from ?qution ..+





















efer% to ct ttern E143 The #'*c) #eriod for thi% inve%tment i% [142] Source: u*!i%her .f the mount to de#o%it tod' to *e *!e to re#!ce n %%et t  %#ecified time in the future i% to *e determined &hich formu! %hou!d *e u%edG A+ 1 L i3・  ------- ,+    ( 1 L i3・ C+    ------1 L i3・ /+  1 L i3・  ---

A+ 2+@4 'er%+ ,+ 1+=6 'er%+ C+ 2+0@ 'er%+ /+ 7+00 'er%+ [146] Source: u*!i%her efer% to ct ttern E143 A%%ume the %me fct% % *ove e(ce#t e(ce#t tht the %!v"e %!v"e v!ue t the end of the inve%tment% inve%tment% u%efu! !ife i% ero+ Bht i% the ne& #'*c) #eriodG A+ 2+@4 'er%+ ,+ 1+=6 'er%+ C+ 2+0@ 'er%+ /+ 2+09 'er%+ [ct ttern E15]





















,+ ro$ect% ro$ect% 1 2 nd 4+

efer% to ct ttern E163 The trdition! #'*c) #eriod i%

C+ ro$ect% 1 nd 4+ A+ ver 5 'er%+ /+ ro$ect% 1 nd 2+ ,+ 2+27 'er%+ [149] Source: u*!i%her efer% to ct ttern E153 Bhich #ro$ect%3 %hou!d M!one' undert)e durin" the u#comin" 'er if it h% on!' 86000000 of fund% vi!*!eG A+ ro$ect 7+

C+ 1+65 'er%+ /+ 2+@7 'er%+ [157] Source: u*!i%her efer% to ct ttern E163 The #rofit*i!it' inde( i%

,+ ro$ect% 1 nd 2+ C+ ro$ect 1+

A+ +61

/+ ro$ect 2+

,+ +42 C+ +@6

[ct ttern E16] A #ro#o%ed #ro#o%ed inve%tment i% not not e(#ected to hve n' n' %!v"e v!ue t the end of it% 5-'er !ife+ or #re%ent v!ue #ur#o%e% c%h f!o&% re %%umed to occur t the end of ech 'er+ The com#n' u%e%  12< fter-t( tr"et rte of return+ urch%e Co%t Annu! et After-

Annu!

/+ 1+425 [154] Source: u*!i%her efer% to ct ttern E163 Bhich %ttement *out the intern! rte of return of the inve%tment i% trueG





















/+ 810=400 [15=] Source: u*!i%her efer% to ct ttern E1=3 Bht i% the net c%h f!o& for the tenth 'er of the #ro$ect tht /ic)in% %hou!d u%e in  c#it! *ud"etin" n!'%i%G A+ 8200000 ,+ 815@000 C+ 8176@00 /+ 8126000 [15@] Source: u*!i%her efer% to ct ttern E1=3 Bht i% the ##ro(imte #'*c) #eriod on the ne& mchineG A+ 1+05 'er%+

Ton' .nc+ h%  co%t of c#it! of 15< nd i% con%iderin" the cqui%ition of  ne& mchine tht co%t% 8@00000 nd h%  u%efu! !ife of 5 'er%+ Ton' #ro$ect% tht ernin"% nd c%h f!o& &i!! incre%e % fo!!o&%: Der et ?rnin"% After-T( C%h !o& ---- ------------ ------------------1 8200000 8720000 2 200000 2@0000 7 200000 200000 4 200000 200000 5 200000 200000 .ntere%t rte fctor% t 15< re % fo!!o&%: re%ent !ue eriod re%ent !ue !ue of 81 of n Annuit' ------ ------------------- ------------1 +@= 0+@= 2 +=6 1+67 7 +66 2+29 4 +5= 2+@6 5 +50 7+76 [161] Source: u*!i%her efer% to ct ttern E1@3 The net #re%ent v!ue of thi% inve%tment i%

,+ 1+54 'er%+ A+ 812@0003 C+ 1+77 'er%+ ,+ 8200000





















C+ 1@< /+ 8760003 /+ 20< [165] Source: u*!i%her A #ro$ect #ro$ect require% n initi! c%h inve%tment inve%tment t it% ince#tion ince#tion of 810000 nd no other c%h outf!o&% re nece%%r'+ nece%%r'+ C%h inf!o&% from the #ro$ect over it% 7-'er !ife re 86000 t the end of the fir%t 'er 85000 t the end of the %econd 'er nd 82000 t the end of the third 'er+ The The future v!ue intere%t fctor% for n mount of 81 t the co%t of c#it! of @< re

eriod -------------------------------------1 2 7 4 ----------------1+0@0 1+166 1+260 1+760 The #re%ent v!ue intere%t fctor% for n mount of 81 for three #eriod% re % fo!!o&%: .ntere%t te ---------------------------@< 9< 10< 12< 14< ---- ---- ---- ---- ---+=94 +==2 +=51 +=12 +6=5 The modified . M.3 for the #ro$ect i% c!o%e%t to

[16@] Source: u*!i%her The fo!!o&in" dt #ertin to the ee% Com#n' for the 'er $u%t ended: S!e% 8@00000 #ertin" income @0000 C#it! turnover 4 .m#uted intere%t rte 10< Bht &% ee% Com#n'% re%idu! incomeG A+ 80 ,+ 8@000 C+ 820000 /+ 860000

A+ @<

[169] Source: u*!i%her Suie o&n%  com#uter r e%e!!in" *u%ine%% nd i% e(#ndin" her *u%ine%%+ Suie i% #re%ented &ith one #ro#o%! ro#o%! A %uch tht the e%timted inve%tment for the e(#n%ion #ro$ect i% 8@5000 nd it i% e(#ected to























/+ 20< [1=2] Source: u*!i%her efer% to ct ttern E203 A%%ume the net c%h c%h f!o& to *e 8170000 8170000  'er+ Bht Bht i% the #'*c) time for the f!eet of truc)%G

,+ An inve%tment tht i% uncorre!ted to the current #ortfo!io ho!din"%+ C+ An inve%tment tht i% hi"h!' corre!ted to the current #ortfo!io ho!din"%+ /+ An inve%tment tht i% #erfect!' corre!ted to the current #ortfo!io ho!din"%+

A+ 7 'er%+ ,+ 7+15 'er%+ C+ 7+@5 'er%+

[1=6] Source: u*!i%her A re"re%%ive re"re%%ive t( i%  t( in in &hich A+ .ndividu!% &ith hi"her income% income% #'  hi"her #ercent"e of their income in t(+























[1@0] Source: CMA 1291 2-11 one of the fo!!o&in" item% re deducti*!e in c!cu!tin" t(*!e income e(ce#t A+ ?%timted !i*i!itie% !i*i!itie% for #roduct #roduct &rrntie% e(#ected to *e incurred in the future+

,+ ?ither one %ince the' hve the %me #re%ent v!ue+ C+ The !um# %um #'ment % it h%  hi"her #re%ent v!ue *' 8500+ /+ The !um# %um #'ment % it h%  hi"her #re%ent v!ue *' 81=50+

,+ /ividend% on common %toc) dec!red *ut not #'*!e unti! ne(t 'er+ C+ ,onu% ccrued *ut not #id *' the end of the 'er to  c%h-*%i% 90< %hreho!der+ /+ ction #' ccrued on n em#!o'ee-*'-em#!o'ee em#!o'ee-*'-em#!o'ee *%i%+

[1@5] Source: u*!i%her /r+ > inve%ted 810000 in  !ifetime nnuit' for hi% "rnddu"hter ?mi!'+ ?mi!'+ The nnuit' i% e(#ected to 'ie!d 8400 nnu!!' forever+ Bht i% the ntici#ted intern! rte of return for the nnuit'G























#ercent the return on n ver"e %toc) i% 10 #ercent nd the *et of thi% #ro$ect i% 1+@0 then &ht i% the #ro$ect% G A+ 810655

it #!n% to "ive u# it% frnchi%e nd to ce%e o#ertin" the route+ .nf!tion i% not e(#ected to ffect either co%t% or revenue% durin" the ne(t @ 'er%+ .f ohn Trn%#ort% co%t of c#it! i% 1= #ercent *' &ht mount &i!! the *etter #ro$ect incre%e the com#n'% v!ueG

,+ 87274

A+ 85750

C+ -87=40=

,+ -81=441

/+ -872012

C+ 810=01 /+ 82=@01

[1@9] Source: u*!i%her Hnion ?!ectric Com#n' mu%t c!en u# the &ter re!e%ed























A+ ro$ect A+ ,+ 6< ,+ ro$ect ,+ C+ 10< C+ The .% re equ! hence 'ou re indifferent+ /+ 10+@0< /+ The % re equ! hence 'ou re indifferent+ [19=] Source: u*!i%her Bht i% the &ei"hted ver"e co%t of c#it! for  firm &ith equ! mount% of de*t nd equit' finncin"  15< *efore-t( com#n' co%t of equit' c#it!  75< t( rte nd  12< cou#on rte on it% de*t tht i% %e!!in" t #r v!ueG

[202] Source: u*!i%her The Io#)in% Com#n' h% e%timted tht  #ro#o%ed #ro$ect% 10-'er nnu! net c%h *enefit received ech 'er end &i!! *e 82500 &ith n ddition! termin! *enefit of 85000 t the end of the 10th 'er+ A%%umin" A%%umin" tht the%e c%h inf!o&% %ti%f' e(ct!' Io#)in% required rte of return























/+ 81442000 C+ 2@< /+ 75< [206] Source: u*!i%her efer% to ct ttern E223 Bht i% the di%counted #'*c) #eriod for the inve%tmentG

[211] Source: u*!i%her efer% to ct ttern E273 Bht i% the . of the inve%tmentG A+ 10+47< ,+ 12+6@<

A+ 5+5 'er%+ C+ 16+72< ,+ =+1 'er%+ /+ 19+1=< C+ 9+2 'er%+

























/+ 87465

























PART 4B

An%&er A3 i% incorrect incorrect *ecu%e 819000 819000 over!oo)%

























An%&er ,3 i% incorrect incorrect *ecu%e the . #rovide% #rovide% 

An%&er ,3 i% incorrect incorrect *ecu%e the rte u%ed u%ed under

























nnuit' due inc!ude% the initi! initi! #'ment t it% undi%counted mount+ ?v!ution of n inve%tment

An%&er A3 i% incorrect incorrect *ecu%e 816@000 fi!% to

























[19] Source: CMA 0697 4-2=

An%&er ,3 i% incorrect incorrect *ecu%e 8100000 i% the



































































































































































































































































































































































































81000 time% 2+55=+ [212] Source: u*!i%her [215] Source: CMA 1291 4-12 An%&er A3 i% incorrect incorrect *ecu%e 82626415 u%ed the &ron" di%count fctor+ An%&er ,3 i% correct+ The fir%t %te# %te# i% to c!cu!te c!cu!te the nnu! c%h f!o&% from the #ro$ect for the *%e c%e the e(#ected v!ue%3+ The%e m' *e c!cu!ted % %ho&n:

AKH? /?SC.T. IB CAKCHKAT?/ 8 in mi!!ion%3 ---------------- -------------------------- -------------1+ evenue% 90000 ( 0+70 ( 8@00 21+600 2+ ri*!e co%t 90000 ( 0+70 ( 8400 10+@00 7+ i(ed co%t 84000000 4+000 4+ /e#recition 820000000 ・@ 2+500 5+ ret( #rofit .tem 1 - .tem% 2 L 7 L 43 4+700 6+ T( .tem 5 ( 0+75 1+505 =+ et #rofit .tem 5 - .tem 6 2+=95 @+ et c%h f!o& .tem = L .tem 4 5+295 Thi% !eve! !eve! of c%h f!o& f!o& occur% for ech of the @ 'er% of the #ro$ect+ The #re%ent v!ue of n @-'er 81 nnuit' i% 4+679 t 14<+ The  of the #ro$ect i% therefore "iven *':

An%&er A3 i% incorrect incorrect *ecu%e 8629= equ!% equ!% 85000 divided *' +=94 2+5== - 1+=@73+ An%&er ,3 i% correct+ The #re%ent v!ue v!ue of  future mount equ!% the mount time% the ##ro#rite intere%t fctor+ Thu% the future mount mu%t equ! the #re%ent v!ue divided *' the intere%t fctor+ The #re%ent v!ue i% "iven nd the intere%t fctor for the #re%ent v!ue of n mount cn *e derived from the t*!e for the #re%ent v!ue of n ordinr' nnuit'+ nnuit'+ .n thi% c%e the fctor i% equ! to the difference *et&een the fctor% for three nd t&o #eriod% t the %ti#u!ted intere%t rte of =< 2+624 - 1+@0@  +@163+ Accordin"!' Accordin"!' the future mount of 85000 85000 in 7 'er% "iven n intere%t rte of =< i% 8612= 85000 #re%ent v!ue ・+@163+ An%&er C3 i% incorrect incorrect *ecu%e 86557 equ!% equ!% 85000 divided *' +=67 7+7@= - 2+6243+ An%&er /3 i% incorrect incorrect *ecu%e 86@07 equ!% equ!% 85000 divided *' +=75 7+712 - 2+5==3+ [216] Source: u*!i%her

  85295000 ( 4+679 - 820000000  84567505 An%&er C3 i% i% incorrect *ecu%e itit fi!ed to con%ider con%ider de#recition+

An%&er A3 i% incorrect incorrect *ecu%e 81=225000 81=225000 re%u!t% from fi!in" to deduct de#recition in c!cu!tin" t(e%+

An%&er /3 i% incorrect incorrect *ecu%e it fi!ed fi!ed to con%ider de#recition nd other fi(ed co%t%+

An%&er ,3 i% correct+ The fo!!o&in" t*!e t*!e derive% the c%h f!o&% nd +

[217] Source: CMA 1291 4-10 An%&er A3 i% incorrect incorrect *ecu%e 82940 %%ume% %%ume% the note i% #'*!e in fu!! t the end of the fourth 'er+ An%&er ,3 i% incorrect incorrect *ecu%e 84465 equ!% equ!% 81000 time% 7+465 #!u% 81000+ An%&er C3 i% incorrect incorrect *ecu%e 84212 equ!% equ!% 81000 time% 4+212+ An%&er /3 i% correct+ The four equ! #'ment% #'ment% re n ordinr' nnuit' *ecu%e the' re due t the end of ech #eriod+ >iven  di%count rte of 6< the ##ro#rite #re%ent v!ue i% 7+465+ The # re%ent v!ue i% 87465 81000 #'ment ( 7+4653+ [214] Source: CMA 1291 4-11 An%&er A3 i% correct+ A #re%ent v!ue t*!e for  %in"!e future mount i% not "iven %o the fir%t %te# i% to derive the ##ro#rite di%count fctor from the t*!e for the #re%ent v!ue of n ordinr' nnuit'+ nnuit'+ The fctor for four #'ment% t @< i% 7+712+ The fctor for three #'ment% i% 2+5==+ Con%equent!' Con%equent!' the difference *et&een the fctor% for 7 nd 4 'er% i% +=75 7+712 - 2+5==3+ The #re%ent v!ue of  %in"!e 84000 #'ment in 4 'er% i% therefore 82940 +=75 ( 840003+

.tem Der 0 Der% 1 to 5 ---------------------- ------- -----------.nve%tment -@0000 evenue 144000000 ri*!e co%t @4000000 @4000 000 i(ed co%t 25000000 /e#recition 16000000 re-t( #rofit 19000000 T( U 76< 6@40000 et #rofit 12160000 et c%h f!o& 2@160000 re%ent v!ue U 12< 2@160000 ( 7+604@3 101511160 101511160   21511160+ An%&er C3 i% incorrect incorrect *ecu%e 826=@0000 re%u!t% re%u!t% from fi!in" to con%ider tht de#recition i%  nonc%h e(#en%e+ An%&er /3 i% incorrect incorrect *ecu%e 85611=000 85611=000 i% *%ed on nnu! %!e% of 15000 unit% rther thn 12000 unit%+

Investment Decision Analysis-1

Recommend Documents