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Payback period (years): Round answers 2 decimal places. Accounting rate of return; Round answers to 4 decimal places. Net present value; Round answers to nearest whole number. Proposal A 2.14 13.8888 10,067 Proposal B 2 13.8888 X 8,496 X Proposal C 1 0 (6,429) C A,B A Best proposal > (b) Factors explaining the differences in rankings include all of the following except: The accounting rate of return considers profitability while payback only considers the time required to recover the investment. While the accounting rate of return explicitly considers the cost of the asset as part of annual depreciation the net present value method considers the cost of the asset as part of the initial investment. Net present value considers the timing of cash flows while payback considers only total cash flows. The net present value method considers the cost of capital while the payback method does not discount future cash flows.

Payback period (years): Round answers 2 decimal places. Accounting rate of return; Round answers to 4 decimal places. Net present value; Round answers to nearest whole number. Proposal A 2.14 13.8888 10,067 Proposal B 2 13.8888 X 8,496 X Proposal C 1 0 (6,429) C A,B A Best proposal > (b) Factors explaining the differences in rankings include all of the following except: The accounting rate of return considers profitability while payback only considers the time required to recover the investment. While the accounting rate of return explicitly considers the cost of the asset as part of annual depreciation the net present value method considers the cost of the asset as part of the initial investment. Net present value considers the timing of cash flows while payback considers only total cash flows. The net present value method considers the cost of capital while the payback method does not discount future cash flows.

Essentials Of Investments
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
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Ranking roposals: Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal A Proposal B $ 60,000 $ 60,000 Initial investment Cash flow from operations Year 1 Year 2 Year 3 Disinvestment Life (years) 50,000 6,000 29,000 0 3 years 30,000 30,000 25,000 0 3 years Payback period (years): Round answers 2 decimal places. Proposal C $ 60,000 Accounting rate of return; Round answers to 4 decimal places. 60,000 • Round payback period (years) to two decimal places. • Round accounting rate of return to four decimal places. • Round net present value to the nearest whole number. • Use negative signs with your answers, when appropriate. Net present value; Round answers to neare whole number. 0 1 year (a) Select the best investment proposal using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization's cost of capital is 12 percent. Rate of Proposal A 2.14 13.8888 $ 10,067 $ Proposal B 2 13.8888 esent value 8,496 Proposal C 1 0 > $ (6,429) X С A.B A Best proposal 4 ONet present value considers the timing of cash flows while payback considers only total cash flows. ⒸThe net present value method considers the cost of capital while the payback method does not discount future cash flows. < " > (b) Factors explaining the differences in rankings include all of the following except: The accounting rate of return considers profitability while payback only considers the time required to recover the investment.* ⒸWhile the accounting rate of return explicitly considers the cost of the asset as part of annual depreciation the net present value method considers the cost of the asset as part of the initial investment.
Transcribed Image Text:Ranking roposals: Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal A Proposal B $ 60,000 $ 60,000 Initial investment Cash flow from operations Year 1 Year 2 Year 3 Disinvestment Life (years) 50,000 6,000 29,000 0 3 years 30,000 30,000 25,000 0 3 years Payback period (years): Round answers 2 decimal places. Proposal C $ 60,000 Accounting rate of return; Round answers to 4 decimal places. 60,000 • Round payback period (years) to two decimal places. • Round accounting rate of return to four decimal places. • Round net present value to the nearest whole number. • Use negative signs with your answers, when appropriate. Net present value; Round answers to neare whole number. 0 1 year (a) Select the best investment proposal using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization's cost of capital is 12 percent. Rate of Proposal A 2.14 13.8888 $ 10,067 $ Proposal B 2 13.8888 esent value 8,496 Proposal C 1 0 > $ (6,429) X С A.B A Best proposal 4 ONet present value considers the timing of cash flows while payback considers only total cash flows. ⒸThe net present value method considers the cost of capital while the payback method does not discount future cash flows. < " > (b) Factors explaining the differences in rankings include all of the following except: The accounting rate of return considers profitability while payback only considers the time required to recover the investment.* ⒸWhile the accounting rate of return explicitly considers the cost of the asset as part of annual depreciation the net present value method considers the cost of the asset as part of the initial investment.
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