Refer to Present Value Tables

question 49

Essay

Refer to Present Value Tables. Monsoon Company is considering an investment that will have an initial cost of $1,000,000 yield annual net cash inflows of $260,000. Yearly depreciation will be $200,000. The equipment is expected to be useful for five years, at which point it will be scrapped with no salvage value. The company requires a minimum rate of return of 10%.
Required:
A. Calculate the accounting rate of return.
B. Calculate the net present value. Is the investment acceptable?
C. Now suppose that the company believes it can sell the equipment at the end of five years for $100,000. Calculate the net present value. Is the investment acceptable?
D. What can you say about the IRR in the first case (no salvage value) versus the IRR in the second case ($100,000 salvage value)?

Understand the concept and implication of Eurodollars and Eurobonds in international finance.

Comprehend the effects of currency strength or weakness on international trade dynamics.

Analyze the political and commercial risks involved in international business, including expropriation and terrorism.

Understand the implications of globalization and protectionism on international trade and investments.

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Definitions:

Debt/Equity Ratio

The metric that specifies how a company allocates equity and debt in the financing of its assets.

Long-Term Debt Ratio

A ratio that compares the amount of long-term debt a company has to its total assets, indicating how much of the company's assets are financed with debt.

Total Debt

The sum of all liabilities, both short and long term, that a company owes to external parties.