-Morgan Is Considering Entering into a Contract to Sell a Building

question 43

Multiple Choice

-Morgan is considering entering into a contract to sell a building on January 1 in exchange for a note. The note pays a lump sum payment of $300,000 in ten years and ten annual payments of $2,500 beginning on the date of sale (January 1) . If the annual interest rate is 10 percent, what is the total present value of the contract?

• A) $159,489.92
• B) $132,559.55
• C) $131,023.42
• D) $155,505.55

Understand the concept of incremental cost approach in capital budgeting.

Recognize the importance of post-audit in capital budgeting and how it can provide feedback on the investment's performance.

Understand the effect of tax implications on cash flows from capital investments.

Understand the concepts of payback method and time value of money in capital budgeting decisions.

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Definitions:

Regression Line

A statistical tool represented as a line on a graph that best fits the data points, showing the relationship between two variables.

Profits

The financial gain obtained when the revenues from business activities exceed the expenses, costs, and taxes associated with the operation.

Exponential Smoothing

A time series forecasting method for smoothing data points by assigning exponentially decreasing weights over time.

Trend Adjustment

A statistical technique used to correct or adjust data to account for systematic patterns or trends over time, improving the accuracy of forecasts.