Exercise 13-9, Concluded
Note B: Amount Number of Weighted
Invested Months Invested Dollars
$100,000 12 $1,200,000
Weighted-average ……………………. $100,000
Interest @ 10% ………………………… 10,000
Allocation of Profits Based on Alternative C
Assumed income level ……………………… $500,000 $560,000 $600,000
Salary ……………………………………………. $ 80,000 $ 80,000 $ 80,000
Cash Distributions
Date—End of Amount
Quarter 1 ……………………………………….. $ 20,000
Quarter 2 ……………………………………….. 20,000
Quarter 3 ……………………………………….. 20,000
(2) Summary of above calculations:
Alternative A Alternative B Alternative C
Combined most likely profit ………………. $180,500 $161,000 $190,000
Net present value ……………………………. 143,479 124,556 152,184
An initial investment of $100,000 is required, regardless of which alternative is selected.
Therefore, this investment is ignored for purposes of selecting an alternative. Also, all