Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal X Proposal Y Proposal Z $92,000 $92,000 $92,000 Initial investment Cash flow from operations Year 1 Year 2 Year 3 Disinvestment Life (years) 90,000 2,000 47,500 0 3 years 46,000 92,000 46,000 47,500 0 0 3 years 1 year 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 14 percent. Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate. Proposal Z Best proposal 0x Z → 0✓✔ X,Y 0 X X Payback period (years) Accounting rate of return: Round answers to 4 decimal places. Net present value; Round answers to nearest whole number. Proposal X 0x 0 x 0 x Proposal Y ox ox 0x ♦ ♦

Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value Presented is information pertaining to the cash flows of three mutually exclusive investment proposals: Proposal X Proposal Y Proposal Z $92,000 $92,000 $92,000 Initial investment Cash flow from operations Year 1 Year 2 Year 3 Disinvestment Life (years) 90,000 2,000 47,500 0 3 years 46,000 92,000 46,000 47,500 0 0 3 years 1 year 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 14 percent. Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate. Proposal Z Best proposal 0x Z → 0✓✔ X,Y 0 X X Payback period (years) Accounting rate of return: Round answers to 4 decimal places. Net present value; Round answers to nearest whole number. Proposal X 0x 0 x 0 x Proposal Y ox ox 0x ♦ ♦

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Investment required Present value of cash inflows Net present value Life of the project Investment…

A: In the Profitability Index, we can compare the present value of projected cash flows to the initial…

Q: Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow…

A: NPV represents the profit generated by a project or an investment and is expressed in absolute…

Q: Consider the following investment project. Calculate the net future worth of this investment at 11%…

A: Future value can be referred to as the value of an underlying asset or security at a future date.…

Q: Calculate the following for each of the projects. I Net present value II. Profitability Index III…

A: Net present value (NPV) is the difference between the present value of cash inflows and the present…

Q: Information on four investment proposals is given below: A Investment required Net present value. $…

A: Profitability index = Present value of cash inflows / Initial investmentHigher the profitability…

Q: Information on four investment proposals is given below: Investment required Present value of cash…

A: Profitability index is calculated by dividing the Present value of cash inflow by the Initial…

Q: Payback Period and Accounting Rate of Return: Equal Annual Operating Cash Flows with Disinvestment…

A: Payback Period The term "payback time" refers to the amount of years needed to recoup the initial…

Q: Assume that Project A has the cash flows listed below and a relevant cost of capital of 13 percent.…

A: NPV is a Financial metric used to calculate the present value of future cash flows. It is a popular…

Q: Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$…

Q: Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow…

A: Capital budgeting in finance provides tools that help evaluate the profitability of long-term…

Q: Francoeur Co. has identified an investment project with the following cash flows: Year 1 2 3 4 Cash…

A: PV refers to the current worth of a sum of money that is to be received or paid in the future,…

Q: What is each project's IRR? Do not round intermediate calculations. Round your answers to two…

A: Hi there, thanks for posting the questions. But as per our Q&A guidelines, we must answer the…

Q: Bruin, Incorporated, has identified the following two mutually exclusive projects: Year 67234 Cash…

A: As per the guidelines, the solution for the first three sub parts will be provided. If you want the…

Q: Net Present Value Method, Present Value Index, and Analysis for a service company Continental…

A: Discount rate is 12% To Find:- Net present Value Present Value Index

Q: Consider the following investment projects.Year (n) Net Cash FlowProject 1 Project 20 -$1,200…

A: Internal Rate of return: Internal Rate of Return can be defined as a financial measure used to…

Q: a. Compute each project's net present value. b. Compute each project's profitability index. c. If…

A: Net Present Value (NPV): It is the difference between the present value of cash inflows and the…

Q: (90,000) 126,000 $36,000 5 years $ (100,000) 138,000 $ 38,000 7 years $ (70,000) 105,000 $ 35,000 6…

A: Profitability index is the Present value of cashinflows divided the intital investment.

Q: Perit Industries has $130,000 to invest. The company is trying to decide between two alternative…

A: Net Present Value is used to evaluate the investment and financing decisions that involve cash flows…

Q: Part D: Investment Decisions Now consider that Luxio has identified the following two mutually…

A: The NPV is used to measure a project's profitability. It discounts future cash flows to find out the…

Q: All techniques: Decision among mutually exclusive investments Pound Industries is attempting to…

A: To Find:- Payback period IRR Which project to select

Q: A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the…

A: IRR is also known as Net Present Value. It is a capital budgeting technique which helps in decision…

Q: Information on four investment proposals is given below. Investment required Present value of cash…

A: Profitability index is computed as = PV of cash inflows / Initial investmentProject is rank based on…

Q: The management of Quest Media Inc. is considering two capital investment projects. The estimated net…

A: Given, Investment in radio station is $942,150 Investment in TV station is $1,786,410

Q: Fuente, Incorporated, has identified an investment project with the following cash flows. Cash Flow…

A: The objective of the question is to calculate the future value of cash flows at different discount…

Q: Shenandoah Springs Company is considering two investment opportunities whose cash flows are provided…

A: The present value index is a ratio of the present value of inflows and the present value of outflows…

Q: Consider two mutually exclusive projects A and B: Cash Flows (dollars) Project Co A -39,500 B…

A: Internal Rate of Return (IRR) means the discount rate at which the present value of cash flows and…

Q: Consider the following two mutually exclusive projects: Year Cash Flow Cash Flow…

A: Please find the answers to the above questions below:

Q: Net Present Value Method, Present Value Index, and Analysis First United Bank Inc. is evaluating…

A: Net present value is the difference between the present value of cash inflows and present value of…

Q: You are given the following information about the cash flows for Projects A and B: Project B…

A: The NPV is a measure of the profitability of a project by discounting future cash flows at an…

Q: Findell Corporation is considering two projects, A and B, and it has gathered the following…

A: The present value index or profitability index is calculated as ratio of present value of cash…

Q: Comparison of NPV and IRR: The Case of Mutually Exclusive Projects Estimated cashflow data for each…

A: Independent investments are those that do not affect one another whereas the mutually exclusive…

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

Ranking Investment Proposals: Payback Period, Accounting Rate of Return, and Net Present Value
Presented is information pertaining to the cash flows of three mutually exclusive investment proposals:
Proposal X Proposal Y Proposal Z
$92,000 $92,000 $92,000
Initial investment
Cash flow from operations
Year 1
Year 2
Year 3
Disinvestment
Life (years)
90,000
2,000
47,500
0
3 years
46,000
46,000
47,500
0
3 years
92,000
0
1 year
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 14 percent.
Note: Follow rounding instructions noted for each computation. Use a negative sign with your answers, when appropriate.
Proposal Z Best proposal
0 x Z
0✔ X,Y
0 X X
Payback period (years)
Accounting rate of return; Round answers to 4 decimal places.
Net present value; Round answers to nearest whole number.
Proposal X
0 x
0 x
0 x
Proposal Y
0 x
0 x
0 x
◆
◆
◆
✓

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 Introduction

VIEW

Step 2 Working Note #1:- Calculation of Payback Period

VIEW

Step 3 Working Note #2:- Calculation of ARR

VIEW

Step 4 Working Note #3:- Calculation of NPV

VIEW

Step 5 Final Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Consider two investments A and B with the following sequences of cash flows: Net Cash Flow n Project A Project B 0 -$120,000 -$100,000 1 20,000 15,000 2 20,000 15,000 3 120,000 130,000 (a) Compute the IRR for each investment. (b) At MARR = 15%, determine the acceptability of each project. (c) If A and B are mutually exclusive projects, which project would you select, based on the rate of return on incremental investment?
A project has the following cash flows set out below. What is the profitability index of this project if the relevant discount rate is 2 percent? Enter your final answer to two decimal places. Year Cash flow 0 -1,745 1 537 2 2,066 3 3,912
Information on four investment proposals is given below. Investment required Present value of cash inflows Net present value Life of the project Required: 1 Compute the profitability index for each investment proposal. Note: Round your answers to 2 decimal places. 2. Rank the proposals in terms of preference Investment Profitability Proposal Index A B C D S (150,000) 211,800 $61,500 Rank Preference 5 years Investment Proposal $(80,000) 110,400 $ 30,400 7 years $ (160,000) 241,600 $ 81,600 6 years D $ (910,000) 1.214,500 $ 304,500 6 years
Garrison Company has two Investment opportunitles. A cash flow schedule for the Investments Is provided below: Year Investment A Investment B $(4,900) 1,960 1,960 1,960 $(5,850) 2,940 2 1,960 1,960 4 1,960 980 Considering the unequal Investments, which of the following techniques would be most approprlate for choosIng between Investment A and Investment B? Multiple Choice Payback method Present value index Net present value method None of these answers is correct
Nikul Don't upload image please
Attend all part
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$29,000 −$29000 1 14,400 4,300 2 12,300 9,800 3 9,200 15,200 4 5,100 16,800 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?
A techniques-Decision among mutually exclusive investments Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table. Cash flows Initial investment (CF) Project A $60,000 Project B $100,000 Project C $90,000 Cash inflows (CF), t=1 to 5 $20,000 $31,500 $32,000 a. Calculate the payback period for each project. b. Calculate the net present value (NPV) of each project, assuming that the firm has a cost of capital equal to 12%. c. Calculate the internal rate of return (IRR) for each project. d. Indicate which project you would recommend. a. The payback period of project A is years. (Round to two decimal places.) % [7%
Question content area top Part 1 (Related to Checkpoint 6.6) (Present value of annuities and complex cash flows) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: Investment Alternatives End of Year A B C 1 $ 20,000 $ 20,000 2 20,000 3 20,000 4 20,000 5 20,000 $ 20,000 6 20,000 100,000 7 20,000 8 20,000 9 20,000 10 20,000 20,000 (Click on the icon in order to copy its contents into a spreadsheet.) Assuming an annual discount rate of 23 percent, find the present value of each investment. Question content area bottom Part 1 a. What is the present value of investment A at an annual discount rate of 23…
Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: MaintenanceEquipment RampFacilities ComputerNetwork Amount to be invested $614,361 $418,741 $186,316 Annual net cash flows: Year 1 318,000 229,000 134,000 Year 2 296,000 206,000 92,000 Year 3 270,000 183,000 67,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each proposal. Use…
Annual cash inflows that will arise from two competing investment projects are given below: Year Investment A Investment B 1 $7,000 $ 10,000 2 8,000 3 9,000 4 10,000 $ 34,000 9,000 8,000 7,000 $ 34,000 The discount rate is 7%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: Compute the present value of the cash inflows for each investment.
Net Present Value Method, Present Value Index, and Analysis for a service company Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: MaintenanceEquipment RampFacilities ComputerNetwork Amount to be invested $591,053 $351,873 $159,991 Annual net cash flows: Year 1 251,000 171,000 103,000 Year 2 233,000 154,000 71,000 Year 3 213,000 137,000 52,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate…