AACE International CCP Exam With Confidence Using Practice Dumps

The equivalent value of an investment alternative in today's dollars is referred to asNet Present Worth (NPW)or Net Present Value (NPV). NPW is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. It is a standard method used in capital budgeting to evaluate the profitability of an investment or project. By discounting future cash flows to the present value using the cost of capital, NPW provides a measure of how much value an investment is expected to add in today's terms.

To calculate the 25-year after-tax present worth of this project, we need to consider the income, expenses, depreciation, and taxes.

First, calculate the annual depreciation:

Depreciation=Initial CostLife=80,00025=3,200\text{Depreciation} = \frac{\text{Initial Cost}}{\text{Life}} = \frac{80,000}{25} = 3,200Depreciation=LifeInitial Cost​=2580,000​=3,200

Now, calculate the taxable income each year:

Taxable Income=Revenue−Expenses−Depreciation=22,500−12,000−3,200=7,300\text{Taxable Income} = \text{Revenue} - \text{Expenses} - \text{Depreciation} = 22,500 - 12,000 - 3,200 = 7,300Taxable Income=Revenue−Expenses−Depreciation=22,500−12,000−3,200=7,300

Calculate the tax:

Tax=Taxable Income×Tax Rate=7,300×0.53=3,869\text{Tax} = \text{Taxable Income} \times \text{Tax Rate} = 7,300 \times 0.53 = 3,869Tax=Taxable Income×Tax Rate=7,300×0.53=3,869

Net income after tax:

Net Income=Taxable Income−Tax=7,300−3,869=3,431\text{Net Income} = \text{Taxable Income} - \text{Tax} = 7,300 - 3,869 = 3,431Net Income=Taxable Income−Tax=7,300−3,869=3,431

Add back depreciation (since it’s a non-cash expense):

Cash Flow=3,431+3,200=6,631\text{Cash Flow} = 3,431 + 3,200 = 6,631Cash Flow=3,431+3,200=6,631

Finally, calculate the present worth using the formula for the present worth of an annuity:

Present Worth=6,631×(1−(1+0.10)−250.10)≈137,466\text{Present Worth} = 6,631 \times \left(\frac{1-(1+0.10)^{-25}}{0.10}\right) \approx 137,466Present Worth=6,631×(0.101−(1+0.10)−25​)≈137,466

So, the correct answer isB. $137,466.

To determine the uniform annual payment required to repay a loan, we use the capital recovery factor formula, which is:

A=P×(i(1+i)n(1+i)n−1)A = P \times \left(\frac{i(1+i)^n}{(1+i)^n-1}\right)A=P×((1+i)n−1i(1+i)n​)

Where:

AAA is the annual payment

PPP is the loan amount ($100,000)

iii is the interest rate per period (10% or 0.10)

nnn is the number of periods (10 years)

Plugging in the values:

A=100,000×(0.10(1+0.10)10(1+0.10)10−1)A = 100,000 \times \left(\frac{0.10(1+0.10)^{10}}{(1+0.10)^{10}-1}\right)A=100,000×((1+0.10)10−10.10(1+0.10)10​)

Calculating this gives:

A≈16,578A \approx 16,578A≈16,578

So, the correct answer isB. $16,578.