Finance and Investment

9 331,434.00 12%
10 371,207.00 12%
11 415,752.00 12%
12 465,642.00 12%
13 652,519.00 12%
14 584,101.00 12%
15 654,193.00 12%
16 732,696.00 12%
17 820,620.00 12%
18 919,094.00 12%

ii) The present value amount of option B
125,000.00 x 7.22497 = 906,212.50
iii) The equivalent rate of return
906,212.50 – 900,000.00 = 6,212.50
f. i) Cash flow diagram if Mr. Gordon accepts Option C.
(principal + interest)
No. of periods payments %rate
1 122,100.00 11%
2 135,531.00 11%
3 150,439.00 11%
4 166,987.00 11%
5 185,355.00 11%
6 207,598.00 12%
7 232,510.00 12%
8 260,411.00 12%
9 291,660.00 12%
10 326,659.00 12%
11 365,858.00 12%
12 409,761.00 12%
13 458,932.00 12%
14 514,004.00 12%
15 575,684.00 12%
16 644,766.00 12%
17 722,138.00 12%
18 808,795.00 12%
ii) The present value of option C
110,000.00 X 7.2497 = 797,467.00
iii) The equivalent rate of Gordon from option C
900,000.00 – 797,467.00 = 102,533.00
g. I have to choose option B because for Mr. Gordon because as the graph or
diagram clearly states that Mr. Gordon would be receiving more that option
A or C.
h. i) Cash Flow Diagram if Gordon accepts option C
no. of payments payments %rate
1 122,100.00 11%
2 135,531.00 11%
3 150,439.00 11%
4 168,492.00 11%
5 687,026.00
ii) Present value of option C
110,000.00 X 3.1024 = 341,264.00
j. i) If I were asked by Mr. Gordon my opinion on what option would I advice him, My recommendation would be…
He can spend his money in a more relaxed manner because it would be more that what he’ll be needing. It is just like saying that he had his money invested wisely through his contributions during the 35 years that he spent working.
Outlay should be ignored. The initial capital or investment for the machine is, $150,000.00. I assumed that the company has enough resources ot cover for this. After tax annual cost of continuing to buy the self sealing container.
b. i) Based on the information, presented, system B should kylie recommend for purchase by company. This system has a scrap value/ salvage value at the end of useful life. The system will still be valued in the end. Besides, this system has a lower cost of operation, and repair and maintenance, which means lower expenses for the company that will result to higher income revenue
ii) Since the company is all equity financed, it very possible to accept both quality control systems. Acquiring both systems is costly, but the gains that will be incurred by the manufacturing company will definitely give back the costs of acquiring the two systems. It will also not be a problem to accept both because dividends paid to shareholders are at a lower rate per share.