Devry university acct346 weekly assignment week 7

DeVry University
ACCT346 Weekly Assignment
Week 7
Directions: Your assignment this week is to answer the four questions below. Please note that Question #1 has 2 parts, Part A and
Part B. Please show your work for full credit and use the box provided. Please add more rows or columns to the box if needed.
1. Gomez Corporation is considering two alternative investment proposals with the following data:
Proposal X
Investment
Useful life
Estimated annual net
cash inflows for 8 years
Residual value
Depreciation method
Required rate of return

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Proposal Y

$850,000

$468,000

8 years
$125,000
$40,000

8 years
$78,000
$-

Straight-line Straight-line
14%

10%

1a. How long is the payback period for Proposal X?

1b. What is the accounting rate of return for Proposal Y?

2. You have been awarded a scholarship that will pay you $500 per semester at the end of each of the next 8
semesters that you earn a GPA of 3.5 or better. You are a very serious student and you anticipate receiving the
scholarship every semester. Using a discount rate of 3% per semester, which of the following is the correct
calculation for determining the present value of the scholarship? PLEASE STATE WHY YOU CHOSE THE ANSWER
THAT YOU DID.
A) PV = $500 × 3% × 8
B) PV = $500 × (Annuity PV factor, i = 3%, n = 8)
C) PV = $500 × (Annuity FV factor, i = 6%, n = 4)
D) PV = $1,000 × (PV factor, i = 3%, n = 4)

3. Maersk Metal Stamping is analyzing a special investment project. The project will require the purchase of two
machines for $30,000 and $8,000 (both machines are required). The total residual value at the end of the
project is $1,500. The project will generate cash inflows of $11,000 per year over its 8-year life.
If Maersk requires a 6% return, what is the net present value (NPV) of this project? (Use present
value tables or Excel.)

4. Hincapie Manufacturing is evaluating investing in a new metal stamping machine costing $30,924. Hincapie
estimates that it will realize $12,000 in annual cash inflows for each year of the machine’s 3-year useful life.
Approximately, what is the the internal rate of return (IRR) for the machine? (Use present value
tables or Excel.)