ABC bought a piece of land in a highly developing area for a purchase price of P4,000,000. Directly attributable costs incurred was P250,000. If ABC were to resell this land now, it would incur cost to sell of P400,000. The following rates were gathered. Weighted average cost of capital 15% Land average price increase per year 18% Inflation rate 4% Required: Assuming that ABC plans to sell the asset by the end of the fifth year, compute the following: 1. Intrinsic value

ABC bought a piece of land in a highly developing area for a purchase price of P4,000,000. Directly attributable costs incurred was P250,000. If ABC were to resell this land now, it would incur cost to sell of P400,000. The following rates were gathered. Weighted average cost of capital 15% Land average price increase per year 18% Inflation rate 4% Required: Assuming that ABC plans to sell the asset by the end of the fifth year, compute the following: 1. Intrinsic value

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 19P: Asset Purchase Price BWP Inc. is considering the purchase of an asset. BWPs required rate of return...

See similar textbooks

Similar questions

Loose Ends in Valuation ABC bought a piece of land in a highly developing area for a purchase price of P4,000,000. Directly attributable costs incurred was P250,000. If ABC were to resell this land now, it would incur cost to sell of P400,000. The following rates were gathered. Weighted average cost of capital 15% Land average price increase per year 18% Inflation rate 4% Required: Assuming that ABC plans to sell the asset by the end of the fifth year, compute the following: 4. Cost of illiquidity 5. Intrinsic value 6. Net benefit of buying the asset
Loose Ends in Valuation ABC bought a piece of land in a highly developing area for a purchase price of P4,000,000. Directly attributable costs incurred was P250,000. If ABC were to resell this land now, it would incur cost to sell of P400,000. The following rates were gathered. Weighted average cost of capital 15% Land average price increase per year 18% Inflation rate 4% Required: Assuming that ABC plans to sell the asset by the end of the fifth year, compute the following: 1. Cost of the land to be recognized in the accounting books 2. Selling price of the land 3. Cost to sell
Asset Purchase Price BWP Inc. is considering the purchase of an asset. BWPs required rate of return on new assets is 12%. The expected net cash inflows generated by the new asset are as follows: Required: Given that the net cash inflows can be realized, what is the maximum amount BWP should be willing to pay for the new asset? If BWP pays that amount, at what amount should BWP recognize the asset on the balance sheet? Assume that each cash inflow occurs at the end of the year. (Contributed by Norma C. Powell)
The exit price of an asset is RO 10,000 and the cost of disposal of the asset is RO 150. The asset is estimated to yield a future cash flow of RO 1000 per annum for the next five years. The Net realizable value of the asset under current cost accounting is a. RO 10,850 b. RO 11,150 c. RO 9500 d. RO 9850
A company is considering two (2) capital expenditure proposals, X and Y. Both options will generate the new line of product that the company will produce. Both are expected to operate for four (4) years. Only one (1) proposal will be accepted. The following information is provided to you: X Y Acquisition cost P46,000.00 P46,000.00 Life 4 4 Profits after depreciation Year 1 P6,500.00 P4,500.00 Year 2 3,500.00 2,500.00 Year 3 13,500.00 4,500.00 Year 4 -1,500.00 14,500.00 Scrap value 4,000.00 4,000.00 Depreciation is charged on a straight-line basis. Required: Calculate the Payback Period for both proposals. Which proposal fared better? Calculate the ARR for both Which proposal fared better? Which appraisal method will you use to decide on this product?
1. Determine the capitalized cost of a small public market if the structure has a first cost of P20M, a life of 20 years and a salvage value of P750,000. The annual operating cost is P150,000. Taxes to be paid is P70,000 annually. Use an interest rate of 7.5%. 2. The maintenance cost of equipment is P15,000 per year and its capitalized cost at 6% interest is P1.8M. IF the equipment has a salvage value of P30,000 and has to be renewed at cost after 10 years, find its original cost. 3. A company uses a type of truck that costs P2M, with a life of three years and a final salvage value of P320,000. How much could the company afford to pay for another type of truck for the same purpose, whose life is four years with a final salvage value of P400,000, if money is worth 4%?
A company is considering two (2) capital expenditure proposals, X and Y. Both options will generate the new line of product that the company will produce. Both are expected to operate for four (4) years. Only one (1) proposal will be accepted. The following information is provided to you: Y Acquisition cost P46,000.00 P46,000.00 Life 4 4 Profits after depreciation Year 1 P6,500.00 P4,500.00 Year 2 3,500.00 2,500.00 Year 3 13,500.00 4,500.00 Year 4 -1,500.00 14,500.00 Scrap value 4,000.00 4,000.00 Depreciation is charged on a straight-line basis. Required: 1. Calculate the Payback Period for both proposals. Which proposal fared better? 2. Calculate the ARR for both proposals. Which proposal fared better? 3. Which appraisal method will you use to decide on this product? Explain.
A mining company brings up a land purchase project for 61,000 TL in order to extract coal.The annual net income of the coal mine is estimated at TL 20,000.At the end of the 10-year useful life, the company is obliged to spend 150.000 TL to make the land suitable for agriculture. Is the project suitable since the annual interest rate is i=10%? Solve according to Net Present Value analysis.
XMohan & Co. is considering the purchase of machine. Two machines X and Y each Costing Rs.50, 000 are available. Earnings after taxes before depreciation are expected to be as under: Year 1 2 3 4 5 Machine 'X' 15000 20000 25000 15000 10000 (Rs.) Machine 'Y' (Rs.) 5000 15000 20000 30000 20000 Estimate the two alternatives according to: (a) Payback method, and (b) NPV method a discount rate of 10% is to be used.
You have entered into an agreement for the purchase of land. The agreement specifies that you will take ownership of the land immediately. You have agreed to pay $35,000 today and another $35,000 in three years. Calculate the total cost of the land today, assuming a discount rate of (a) 3%, (b) 5%, or (c) 7%. (FV of $1. PV of $1. FVA of $1, and PVA of $1) (Use tables, Excel, or a financial calculator. Round your answers to 2 decimal places.) a. b. C Payment Amount $ 35,000 35,000 35,000 Interest Rate 3% 5% 7% Compounding Annually Annually Annually Period Due 3 years 3 years 3 years Total Cost of Land Today
Compare the alternatives below on the basis of their capitalized costs with adjustments made for inflation. Use i=13% per year and f= 2.6% per year. Alternative First cost, $ Y -15,500,000 -12,500,000 AOC, $ per year Salvage value, $ Life, years -25,000 -10,000 105,000 82,000 10 00 The capitalized cost for alternative X is $ The capitalized cost for alternative Y is $| Select alternative (Click to select) v
ı think we have to equalize their economic lives Which investment is more suitable to be decided for the new facility to be established? Interest is 50% (0.5) per annum for X: Investment amount: 10.000 TL Economic life: 4 years Salvage value: 2.000 TL Annual maintenance expense: 500 TL Raw material expense: 20 TL Labor expense: 15 TL for Y: Investment amount: 20.000 TL Economic life: 5 years Salvage value: 5,000 TL Annual maintenance expense: 750 TL Raw material expense: 18 TL Labor expense: 12 TL for Z: Investment amount: 40.000 TL Economic life: 6 years Salvage value: 10,000 TL Annual maintenance expense: 1.000 TL Raw material expense: 15 TL Labor expense: 7.5 TL.