The Estimated Cash Flows of an Investment Project Are Shown

question 7

Essay

The estimated cash flows of an investment project are shown below. $$\begin{array} { | l | l | l | l | } \hline \text { Item } & \text { Optimistic } & \text { Most likely } & \text { Pessimistic } \\\hline \text { Initial investment } \$ & 745,000 & 750,000 & 755,000 \\\hline \text { Net annual revenue, } \$ / y e a r & 81,500 & 80,000 & 79,500 \\\hline \text { Market value, } \$ & 39,500 & 38,000 & 37,000 \\\hline \text { Project life, years } & 7 & 7 & 7 \\\hline\end{array}$$ Using a MARR of 14% per year, determine the AW for each of the three estimation conditions.

---

Definitions:

Credit

An accounting entry that increases a liability or equity account, or decreases an asset or expense account, represented on the right side of the ledger.

Closing Entry Process

The accounting procedure used at the end of an accounting period to transfer balances from temporary accounts to permanent accounts.

Revenue Accounts

Accounts that track the income earned from the sale of goods and services, or the increase in equity resulting from the operations of an organization.

Owner's Capital Account

An account on a company's balance sheet that represents the owner's invested capital plus retained earnings minus withdrawals.