What is the net present value of an investment of $100,000 that is expected to generate net annual cash inflows of $25,000 for 6 years when the required rate of return is 12%?
Net present value of an investment is calculated by subtracting the amount of investment from the present value of all cash inflows from the investment over its life. Net annual cash inflows are $25,000. The number of years for which the investment will generate the cash inflows is 6 and the required rate of return is 12%. The investment generates equal cash inflows each year. Therefore, the present value of cash inflows should be calculated by multiplying the net annual cash inflow by the present value of an ordinary annuity of $1 at 12% per period for 6 periods. Present value of cash inflows = $25,000 x PVIFA (12%, 6) = $25,000 x 4.1114 = $102,785 Now subtract the amount of investment from the present value of cash inflows to get the net present value of the investment. Net present value = $102,785 - $100,000 = $2,785
Mr. A deposits $1,000 per month in a bank account for 36 months. How much will Mr. A get after 36 months if the the bank provides interest at an annual rate of 12% on such deposits?
Here the requirement is to compute the future value of an annuity of $1,000 per month for 36 months at an annual interest rate of 12%. Since the deposits are made monthly, the first thing to be done is to convert the annual interest rate into a monthly interest rate. Monthly interest rate = Annual interest rate ÷ Number of month in a year = 12% ÷ 12 = 1% Now determine the amount to be received by Mr. A after 36 months by multiplying the monthly deposit by the future value of an annuity of $1 per period at 1% for 36 periods. Future value of an annuity of $1 per period at 1% for 36 periods = 43.07688 Therefore, The amount to be received by Mr. A after 36 months = $1,000 x 43.07688 = $43,076.88
What journal entries should be prepared to record the sale of merchandise inventory for $15,000 on account under perpetual inventory system. The the cost of merchandise inventory sold is $12,000.
Under the perpetual entry system, two journal entries are prepared to record sale of merchandise inventory. The first entry records the sales revenue generated from the transaction and the second entry will records the cost of goods sold. The entry to record sales revenue is prepared by debiting Accounts Receivable and crediting Sales Revenue by the amount of selling price of the merchandise inventory. Debit - Accounts Receivable ------------- $15,000 Credit - Sales Revenue ----------------------------- $15,000 The entry to record the cost of goods sold is prepared by debiting Cost of Goods Sold and crediting Merchandise Inventory by the amount of the cost of merchandise inventory sold. Debit - Cost of Goods Sold -------------- $12,000 Credit - Merchandise Inventory ----------------- $12,000