Find the present value of an investment in plant and


1. Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $26,000 for 15 years and to have a resale value of $50,000 at the end of that period.

Assume a 10% rate and earnings at year end, and the the following factors:

The present value of 1 at 10% for 15 periods is .23939.

The present value of an ordinary annuity at 10% for 15 periods is 7.60608.

The future value of 1 at 10% for 15 periods is 4.17725.

2. On January 15, 2012, Dolan Corp. adopted a plan to accumulate funds for environmental improvements beginning July 1, 2016, at an estimated cost of $5,000,000. Dolan plans to make four equal annual deposits in

A fund that will earn interest at 10% compounded annually. The first deposit was made on July 1, 2012. Future value factors are as follows:

Future value of 1 at 10% for 5 periods   1.61

Future value of ordinary annuity of 1 at 10% for 4 periods                      4.64

Future value of annuity due of 1 at 10% for 4 periods                             5.11

Dolan should make four annual deposits of?

3. During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $31,060 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation.

The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Stacy estimates that the vines will bear grapes that can be sold for $61,290 each year. For the next 20 years (11–30), she expects the harvest will provide annual revenues of $111,160. But during the last 10 years (31–40) of the vineyard’s life, she estimates that revenues will decline to $83,280 per year.

During the first 5 years, the annual cost of pruning, fertilizing, and caring for the vineyard is estimated at $9,410; during the years of production, 6–40, these costs will rise to $12,780 per year. The relevant market rate of interest for the entire period is 11%. Assume that all receipts and payments are made at the end of each year.

Required:

Dick Button has offered to buy Stacy’s vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept?

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Financial Accounting: Find the present value of an investment in plant and
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