Accounting > QUESTIONS & ANSWERS > Brigham Young University, Idaho ACCTG 202 Chapter 11 Questions And Answers-REVIEWED BY EXPERTS-ALL A (All)

Brigham Young University, Idaho ACCTG 202 Chapter 11 Questions And Answers-REVIEWED BY EXPERTS-ALL ANSWERS CORRECT

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1. Latting Corporation has entered into a 7 year lease for a building it will use as a warehouse. The annual payment under the lease will be $4,781. The first payment will be at the end of the curren... t year and all subsequent payments will be made at year-ends. If the discount rate is 6%, the present value of the lease payments is closest to: $4,781 × 5.582 = $26,688 (rounded) 2. James just received an $8,000 inheritance check from the estate of his deceased rich uncle. James wants to set aside enough money to pay for a trip in five years. If the trip is expected to cost $5,000, how much of the $8,000 must James deposit now if the rate of return is 12% per year in order to have the $5,000 in five years? PV = $5,000 × 0.567 = $2,835 3. (Ignore income taxes in this problem.) Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $29,000 and will have a 6-year useful life and a $4,100 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $32,100 per year. The cost of these prescriptions to the pharmacy will be about $25,200 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to: Annual net cash inflow = $32,100 − $25,200 = $6,900 Payback period = Investment required ÷ Annual net cash inflow = $29,000 ÷ $6,900 per year = 4.2 years [Show More]

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