Figure 14-11
Present Value of an Annuity of $1 in Arrears

question 143

Essay

Figure 14-11
Present value of an annuity of $1 in arrears $\begin{array}{|c|l|l|l|l|l|l|}\hline \text { Periods } & 4 \% & 6 \% & 8 \% & 10 \% & 12 \% & 14 \% \\\hline 1 & 0.962 & 0.943 & 0.926 & 0.909 & 0.893 & 0.877 \\\hline 2 & 1.886 & 1.833 & 1.783 & 1.736 & 1.690 & 1.647 \\\hline 3 & 2.775 & 2.673 & 2.577 & 2.487 & 2.402 & 2.322 \\\hline 4 & 3.630 & 3.465 & 3.312 & 3.170 & 3.037 & 2.914 \\\hline 5 & 4.452 & 4.212 & 3.993 & 3.791 & 3.605 & 4.433 \\\hline 6 & 5.242 & 4.917 & 4.623 & 4.355 & 4.111 & 3.889 \\\hline 7 & 6.002 & 5.582 & 5.206 & 4.868 & 4.564 & 4.288 \\\hline 8 & 6.733 & 6.210 & 5.747 & 5.335 & 4.968 & 4.639 \\\hline 9 & 7.435 & 6.802 & 6.247 & 5.759 & 5.328 & 4.946 \\\hline 10 & 8.111 & 7.360 & 6.710 & 6.145 & 5.650 & 5.216 \\\hline\end{array}$
-Refer to Figure 14-11.Waterfall Country Club Company is considering two projects. $\begin{array}{lrr}&\text { Golf Course } & \text { Clubhouse } \\&\text { Ungrade } & \text { Ungrade }\\\text { Initial investment } & \$ 500,000 & \$ 100,000 \\\text { Annual cash flows } & \$ 88,500 & \$ 34,320 \\\text { Life of the project } & 10 \text { years } & 4 \text { years } \\\text { Depreciation per year } & \$ 50,000 & \$ 25,000\end{array}$ Waterfall requires a minimum rate of return of 8%. A. What is the accounting rate of return for each project?
B. What is the net present value for each project?
C. What is the internal rate of return for each project?
D. Which project should be chosen? Explain your reasoning.

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Definitions:

Work in Process Inventory

Items in a manufacturing process that are partially completed but not yet finished goods.

Raw Materials Used

The quantity of basic materials and components consumed in the production process to manufacture goods.

Finished Goods Inventory

Inventory of finished goods awaiting sale but not yet purchased by customers.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including material and labor costs.