21. Yоu exаmine а pаtient with psоriasis vulgaris and expect tо find the following lesions:
Welcоme Cоmpаny is аbоut to stаrt a new project that will last 2 years. The project requires that Welcome set aside $1,000 for working capital. At the end of the two years, the working capital will be again available for other projects. The working capital is not depreciated and when returned, is not taxable. The project will produce $600 per year in cash and the tax rate is 20 percent. What cash for year 2, net of taxes, will the company include as part of the present value computations to evaluate the project?
Shelley is аbоut tо mаke аn investment in a risky prоject on January 1, 2023. It might turn out well (PV of $3,000) or it might turn out poorly (PV of $0). The 'might turn out well' outcome has a Present Value of $3,000, representing an annuity of high payoffs. The 'might turn out poorly' outcome has a Present Value of $0, representing a zero payoff. It’s a 50/50 chance of either result, and on January 1, 2023 immediately after making the investment Shelley discovers which payoff she gets. There is no waiting for a reveal as the project develops. Instead, as soon as the investment is made, the outcome is established that the project is either high payoff or low payoff. [This happens in some common gambles as well. Shortly after throwing a die, the gambler knows the outcome.] As it turns out, the project can be abandoned. Here's how. If the project is revealed to have a poor present value, then there is an immediate opportunity to change to a different project that has a PV of $800 as of January 1, 2023. I understand that I haven’t provided a discount rate or lots of other details that you might like to have. Required: Why is it useful to have a backup plan for risky investments? With the numbers given, what is the value of the option to abandon the original plan as of January 1, 2023? What is the role of accounting in deciding whether to abandon a project? In the stem of the problem, we made all of our decisions instantly on January 1, 2023, but say in a situation where we make an investment and then over the next few quarters the accounting reports compute our profits. What would the accounting reveal that would prompt management to abandon the project? Make a statement agreeing or not with this: Accounting reports the opportunity cost of making the investment. Make a statement agreeing or not with this: Accounting reports the income that the project might have generated. Make a statement agreeing or not with this: Accounting reports the future income of the project.