An analyst gathered following information about Fuzi Manufacture Inc in year 2004 Proceeds from issruance of long term debt $300k Proceeds from insurance of short term debt $100k purchase of equipment $250k loss on sale of equipment $70k proceeds from sale of equipment $170k equity in earnings of affilicate $50k On the year 2004 statement of cash flows, the company would report net cash flow from investment activities closest to: A-150k B-8-k c100k d180k ================================================== An investor is considering 2 projects A and B with the following cash flows. One has a life that is 2ce as long as the other. The firm’s discount rate is 12% CF Project A: Time 0: -5000 Time1:6000 Time2:7000 Time3:7500 CF Project B: Time 0: -5000 Time1:4500 Time2:3500 Time3:4500 Time4:3500 Time5:4500 Time6:3500 The equivalent annual anuuities for the 2 projects are cloesest to: A 1167 1362 B 398 182 C 645 732 D 531 380
B for the first one. 2nd one - dont get any of the above answers…
B is correct for the first one. The only way to get it is to ignore loss on sale of equipment $70k , and ignore equity in earnings of affilicate $50k . Why do you do that? is equity in earnings of affilicate part of CFI or CFF? How about the 70K?
Gain and loss are non-cash transactions. What matters in Cash flow statement is the that you got vs the that you spent. At the end of the day Fuzi got $170 for the machine it sold. No clue about the 2nd one
Like DElhiRocks said you would not back out the gain or loss from CFI. Look at it this way: proceeds from sale = 170 ===> This is what you actually received from the sale. loss from sale = 70 ===> Book Value of the asset at the time of the sale = 240. This is just accounting gain/loss and is not an actual CF. This is why you do not use the loss/gain. (The only time you would ever consider the gain/loss is when you are calculating CFO using the indirect method) Equity is earning of affiliate ==> This is just the parent’s portion of the earnings of the affiliate and does nto represent a distribution back to the parent. So you ignore this one as well since it is not an actual CF.
uh, let me be the one to ask the stupid question: it is 80k right? there is a typo in the choices?
yes, 80k is correct.
singlesong, whats the solution for the second???
Sorry, I haven’t kept in pace with this. Answer for the second one: First calculate the net present values of the two projectrs at 12% discount rate, Project A NPV=11275.85 Project B NPV=11561.99 Next, convert the NPV into an annuity Project A: N=3 I/Y=12, PV=1275.85; FV=0 Computer PMT=3834 Project B: N=6 I/Y=12 PV=1561.99 FV=0 COmputer PMT=1995 Even though project B has the higher NPV, Project A has the higher equivalent annual annuity so the firm would choose project A
For the first project I am getting a PMT of 4694 when converted to an annuity.
Why is $10,000 deducted for the PV inputs for both project A and B? I’m lost on that part…