The following data have been gathered for a capital investment decision.
Minimum rate of return for this investment is 14 percent.The present value factors for 14 percent discount rate are given below.
a.Compute the present value of each of the cash inflows of the investment.
b.What would have been the present value of the cash flows if they were received in equal installments over the five-year period at the same discount rate? (Assume the total cash inflows remain same. )
c.If the answers to parts (a)and (b)differ,explain the reason(s)why.
Definitions:
Centralization
The degree to which decision-making authority is concentrated at higher levels within an organization.
Decentralization
The process of distributing or dispersing functions, powers, people, or things away from a central location or authority.
Decision Making and Control
Processes involved in selecting among various options and implementing the selected course of action, ensuring objectives are achieved efficiently.
Binding Price Ceiling
A legally established maximum price for goods or services that is below the market equilibrium price, leading to shortages.
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