Hobart Corporation evaluates capital projects using a variety of performance screens; including a hurdle rate of 16%, payback period of 3 years or less, and an accounting rate of return of 20% or more. Management is completing review of a project on the basis of the following projections. Capital investment P200,000 Annual cash flows P 74,000 Straight-line depreciation 5 years Terminal value P20,000 The projected internal rate of return (IRR) is 20%. Which one of the following alternatives reflects the appropriate conclusions for the indicated evaluative measures? Group of answer choices IRR − Accept; Payback − Accept. IRR − Accept; Payback − Reject. IRR − Reject; Payback − Reject.
Hobart Corporation evaluates capital projects using a variety of performance screens; including a hurdle rate of 16%, payback period of 3 years or less, and an accounting rate of return of 20% or more. Management is completing review of a project on the basis of the following projections. Capital investment P200,000 Annual cash flows P 74,000 Straight-line depreciation 5 years Terminal value P20,000 The projected internal rate of return (IRR) is 20%. Which one of the following alternatives reflects the appropriate conclusions for the indicated evaluative measures? Group of answer choices IRR − Accept; Payback − Accept. IRR − Accept; Payback − Reject. IRR − Reject; Payback − Reject.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Hobart Corporation evaluates capital projects using a variety of performance screens; including a hurdle rate of 16%, payback period of 3 years or less, and an accounting
|
Capital investment |
P200,000 |
|
Annual cash flows |
P 74,000 |
|
Straight-line |
5 years |
|
Terminal value |
P20,000 |
The projected
Group of answer choices
IRR − Accept; Payback − Accept.
IRR − Accept; Payback − Reject.
IRR − Reject; Payback − Reject.
IRR − Reject; Payback − Accept.
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