Answered: a. Internal Rate of Return (IRR) b.…

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a. Internal Rate of Return (IRR) b. Payback Period (PBP) c. Benefit-Cost Ratio (BCR)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2PA: Jasmine Manufacturing is considering a project that will require an initial investment of $52,000...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

You bought a seed drill with an initial investment of P 245,000 and has a life span of 10 years. It has an annual expense of Php 114,347.50 and gives a benefit of 180,000.00 per year. The project has an estimated salvage value of 10% of the investment. If the interest rate is 20% annually.

Compute the following:

a. Internal Rate of Return (IRR)

b. Payback Period (PBP)

c. Benefit-Cost Ratio (BCR)

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

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