| McGloire Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Lori Alleyne, staff analyst at McGloire's, is preparing an analysis of the three projects under consideration by Joyanne McGloire, the company's owner. A в 1 Project A Project B Project C 2 Projected cash outflow 3 Net initial investment $3 000 000 $1 500 000 $4 000 000 4 5 Projected cash inflows Year 1 Year 2 Year 3 Year 4 $1 000 000 1 000 000 1 000 000 1 000 000 $ 400 000 900 000 $2 000 000 2 000 000 6. 800 000 200 000 100 000 10 11 Required rate of return 10% 10% 10% 1. Because the company's cash is limited, McGloire thinks the payback method should be used to choose between the capital budgeting projects.

| McGloire Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Lori Alleyne, staff analyst at McGloire's, is preparing an analysis of the three projects under consideration by Joyanne McGloire, the company's owner. A в 1 Project A Project B Project C 2 Projected cash outflow 3 Net initial investment $3 000 000 $1 500 000 $4 000 000 4 5 Projected cash inflows Year 1 Year 2 Year 3 Year 4 $1 000 000 1 000 000 1 000 000 1 000 000 $ 400 000 900 000 $2 000 000 2 000 000 6. 800 000 200 000 100 000 10 11 Required rate of return 10% 10% 10% 1. Because the company's cash is limited, McGloire thinks the payback method should be used to choose between the capital budgeting projects.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. State the criterion for accepting or rejecting independent projects under each of the following methods. - Profitability index - Discounted payback period - Accounting rate of return - Net present value - Payback period - Internal rate of return
The internal rate of return (IRR) is the: Multiple Choice discount rate that results in a zero net present value for the project. discount rate that causes a project's aftertax income to equal zero.
Subject :- Accounting
If for a certain project the income of the development is received later than the costs are incurred, a/an in the effective rate of interest will lead the discounted payback period to Select one: a. Decrease, increase b. Increase, increase c. No mutual relationship between the two. d. Decrease/lncrease, stay constant
using a net present value (NPV) as an investment criterion , a project is acceptable if NPV is:
Indicate whether its True or False. Then write the explanation! The twin advantages with using the IRR method as opposed to the NPV method for project evaluation is that you don’t need to worry about what an appropriate risk- adjusted discount rate might be for the project and you will always get the correct answer to the investment decision.
A public decision-maker has a budget of $30m which must be spent in the current year. Three independent and indivisible projects were proposed. Each project has a 5 years life. The following table lists the capital cost of each project and their respective annual benefits. The discount rate is 10%. Initial capital costs 12m 10m 17m ANNUAL Benefits 4.3m 4.2m 5.8m Projects A (school) B (Hospital) C (Road) a. List the possible combinations of projects, given the above budget
What type of projects does the Payback method favor?
e. IMPORTANT Note that from this example that a higher IRR for a nindividual alternative does not gurantee that the alternatvie is more economical than the one with a lower IRR. It is the incremental IRR value relative to the MARR that determines which alternative is more economical. The result of the incremental analysis are always the same as those of the PW,AW, or FW anaylsis
Determine the real rate of return of this project on an after-tax basis?
What would you recommend if the benefit / cost ratio is >1: Select one: a. The project must be accepted. b. Benefit / cost ratio cannot be >1 c. The project must be rejected. d. Benefit / cost ratio always =1
The advantage(s) of the discounted payback method over the payback method of project analysis include:I. ease of use II. liquidity bias III. arbitrary cutoff point IV. the consideration of time value of money V. works well for research and development projects Multiple Choice I, II, III, IV and V III and V only IV only I, II, III and V only III only