# BEC REVIEW 9

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1. Salem Co. is considering a project that yields annual net cash inflows of \$420,000 for years 1 through 5, and a net cash inflow of \$100,000 in year 6. The project will require an initial investment of \$1,800,000.  Salem’s cost of capital is 10%.

Present value information is presented below:

Present value of \$1 for 5 years at 10% is 0.62.

Present value of \$1 for 6 years at 10% is 0.56.

Present value of an annuity of \$1 for 5 years at 10% is 3.79.

What was Salem’s expected net present value for this project?
-\$152,200

Net present value is a measure of the projected return on investment that accounts for the time value of money. It is the difference between the present value of future cash inflows from an investment and the costs related to the investment, including the investment's initial cost.

Using a 10% interest rate, the present value of an annuity of \$420,000 a year for five years is \$420,000 × 3.79, or \$1,591,800.

The present value of a single payment of \$100,000 in six years is \$100,000 × 0.56, or \$56,000.

These sum to a present value of future cash inflows of \$1,647,800.

The net present value is this sum (\$1,647,800) less the original investment of \$1,800,000.

The difference is a negative net present value of \$152,200.
2. ---------------------- is a measure of the projected return on investment that accounts for the time value of money.
Net present value is a measure of the projected return on investment that accounts for the time value of money.
3. What is Net Present Value?
Net present value is a measure of the projected return on investment that accounts for the time value of money.
4. How do you calculate Net Present Value?
It is the difference between the present value of future cash inflows from an investment and the costs related to the investment, including the investment's initial cost.
5. Letters of credit are often used to facilitate international trade. The basic purpose of the letter of credit is to reduce risk to the:
exporter.
6. Cay Co.’s fixed manufacturing overhead costs totaled \$100,000, and variable selling costs totaled \$80,000. Under direct costing, how should these costs be classified?
Period costs \$180,000;

Product costs \$0
7. --------------------------------- is a method of costing in which fixed costs are charged to expense as a period cost when incurred.
Direct (variable) costing is a method of costing in which fixed costs are charged to expense as a period cost when incurred.
8. What is Direct (variable) costing?
Direct (variable) costing is a method of costing in which fixed costs are charged to expense as a period cost when incurred.
9. What is another name for variable costing?
Direct costing
10. What is another name for direct costing?
Variable costing
11. An --------------------------- is an annuity that is payable at the end of each period.
An ordinary annuity is an annuity that is payable at the end of each period.
12. what kind of annuity is an ordinary annuity?
An ordinary annuity is an annuity that is payable at the end of each period.
13. An -------------------------- is payable at the beginning of each period.
An annuity due is payable at the beginning of each period.
14. What kind of annuity is an annuity due?
An annuity due is payable at the beginning of each period.

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 Author: Joens1313 ID: 310742 Filename: BEC REVIEW 9 Updated: 2015-11-01 22:25:18 Tags: BEC REVIEW Folders: Description: BEC REVIEW 9 Show Answers:

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