A new machine tool is expected to generate receipts as follows: $5,000 in year one; $3,000 in year two, nothing in the next year, and $2,000 in the fourth year
At an interest rate of 6%, what is the net present value of these receipts? Is this a better net present value than $2,500 each year over four years? Explain.
5,000 × .943 + 3,000 × .890 + 2,000 × .792 = $8,969 using Table S7.1 ($8,971.16 using Excel). The steady stream generates an NPV of 2,500 × 3.465 = $8,662.5 ($8,662.76 using Excel). The irregular stream has a higher net present value because the larger receipts come early.
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[The following information applies to the questions displayed below.]On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums.Assuming Wayne issued the bond for 102.5, what is the amount of interest expense that will be reported on the income statement for the year ending December 31, Year 1?
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A. Viva B. Vivo C. Nera D. Nero