Question 1Davidsons Incorporated is using Payback Period and Net Present Value(NPV) methods for investment decision making for small projects. Thecut-off period will remain at 3 years.The net after tax cash flows of the projects are as follows:Cash FlowsInitial CostYear 1Year 2Year 3Required:Project 1£11,000£5,000£5,000£5,000Project 2£20,000£7,000£5,500£4,000Project 3£8,000b) Explain the uses, limitations, and merits of the Payback Periodcompared to Net Present Value in investment appraisal.£3,000£3,500£4,000a) Calculate the NPV of each project at 9% discount rate. Given theabove four projects' cash flows and using a 9% discount rate, whichprojects that would have been accepted under PaybackPeriod will now be rejected under Net Present Value?Project 4£19,000£11,000£12,000£0

Payback Period:The Payback Period is a financial metric that calculates the time it takes for an…

Question 1 Davidsons Incorporated is using Payback Period and Net Present Value (NPV) methods for investment decision making for small projects. The cut-off period will remain at 3 years. The net after tax cash flows of the projects are as follows: Cash Flows Initial Cost Year 1 Year 2 Year 3 Required: Project 1 £11,000 £5,000 £5,000 £5,000 Project 2 £20,000 £7,000 £5,500 £4,000 Project 3 £8,000 £3,000 £3,500 £4,000 a) Calculate the NPV of each project at 9% discount rate. Given the above four projects' cash flows and using a 9% discount rate, which projects that would have been accepted under Payback Period will now be rejected under Net Present Value? b) Explain the uses, limitations, and merits of the Payback Period compared to Net Present Value in investment appraisal. Project 4 £19,000 £11,000 £12,000 £0

Question 1 Davidsons Incorporated is using Payback Period and Net Present Value (NPV) methods for investment decision making for small projects. The cut-off period will remain at 3 years. The net after tax cash flows of the projects are as follows: Cash Flows Initial Cost Year 1 Year 2 Year 3 Required: Project 1 £11,000 £5,000 £5,000 £5,000 Project 2 £20,000 £7,000 £5,500 £4,000 Project 3 £8,000 £3,000 £3,500 £4,000 a) Calculate the NPV of each project at 9% discount rate. Given the above four projects' cash flows and using a 9% discount rate, which projects that would have been accepted under Payback Period will now be rejected under Net Present Value? b) Explain the uses, limitations, and merits of the Payback Period compared to Net Present Value in investment appraisal. Project 4 £19,000 £11,000 £12,000 £0

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2PA

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