Requirements 1. Determine the payback period of each project. Rank the projects from most desirable to least desirable based on payback. 2. Are there other factors that should be considered in addition to the payback period? Requirement 1. Determine the payback period of each project. Rank the projects from most desirable to least desirable based on payback. First, determine the payback period of each project. (Enter the payback period as a numeral.) Payback period in Project years Project L Project M Project N years Data Table years Гyears Net Cash Inflows Project L Project M Project N Year Annual Accumulated Annual Accumulated Annual Accumulated Year 1 $ 100,000 $ 100.000|$ 50.000 $ 50.000|$ 200,000 $ 200,000 Year 2 100,000 200,000 150,000 200,000 200,000 400,000 Year 3 100,000 300,000 200,000 400,000 Year 4 100,000 400,000 250,000 650,000 Year 5 100,000 500,000 300,000 950,000 Year 6 100,000 600,000 Year 7 100,000 700,000 Year 8 100,000 800,000

Requirements 1. Determine the payback period of each project. Rank the projects from most desirable to least desirable based on payback. 2. Are there other factors that should be considered in addition to the payback period? Requirement 1. Determine the payback period of each project. Rank the projects from most desirable to least desirable based on payback. First, determine the payback period of each project. (Enter the payback period as a numeral.) Payback period in Project years Project L Project M Project N years Data Table years Гyears Net Cash Inflows Project L Project M Project N Year Annual Accumulated Annual Accumulated Annual Accumulated Year 1 $ 100,000 $ 100.000|$ 50.000 $ 50.000|$ 200,000 $ 200,000 Year 2 100,000 200,000 150,000 200,000 200,000 400,000 Year 3 100,000 300,000 200,000 400,000 Year 4 100,000 400,000 250,000 650,000 Year 5 100,000 500,000 300,000 950,000 Year 6 100,000 600,000 Year 7 100,000 700,000 Year 8 100,000 800,000

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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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

100%

Consider the following three projects. All three have an initial investment of $400,000.
E (Click the icon to view the investments.)
Requirements
Determine the payback period of each project. Rank the projects from most desirable to least desirable based on payback.
1.
2.
Are there other factors that should be considered in addition to the payback period?
Requirement 1. Determine the payback period of each project. Rank the projects from most desirable to least desirable based on payback. |
First, determine the payback period of each project. (Enter the payback period as a numeral.)
Payback period in
Project
years
Project L
years
- X
Data Table
Project M
years
Project N
years
Net Cash Inflows
Project L
Project M
Project N
Year
Annual
Accumulated
Annual
Accumulated
Annual
Accumulated
Year 1 $
100,000 $
100,000 $
50,000 $
50,000| $ 200,000 $
200,000
Year 2
100,000
200,000
150,000
200,000
200,000
400,000
Year 3
100,000
300,000
200,000
400,000
Year 4
100,000
400,000
250,000
650,000
Year 5
100,000
500,000
300,000
950,000
Year 6
100,000
600,000
Year 7
100,000
700,000
Year 8
100.000
800,000
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Using image: a-1. What is the payback period for each project a-2. If you apply the payback criterion, which investment will you choose? b-1. What is the discounted payback period for each project? b-2. If you apply the discounted payback criterion, which investment will you choose? c-1. What is the NPV for each project? c-2. If you apply the NPV criterion, which investment will you choose? d-1. What is the IRR for each project? d-2. If you apply the IRR criterion, which investment will you choose? e-1. What is the profitability index for each project? e-2. If you apply the profitability index criterion, which investment will you choose? f. Based on your answers in (a) through (e), which project will you finally choose?
How can we calculate the terminal project balance of the Project?
When does the project reach the payback point?
What is the criteria to accept a project based on the net present value and the internal rate of return?
Several proposed capital projects which are economically acceptable may have to be ranked due to constraints in financial resources. In ranking these projects, the least pertinent is this statement. A. A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired rate of return, which rate is used in calculating the net present value of each project. B. In selecting the required rate of return, one may either calculate the organization’s cost of capital or use a rate generally acceptable in the industry. C. If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the project. D. If the net present value method is used, the profitability index is calculated to rank the projects. The lower the index, the better the project.
Subject :- Accounting
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Life of Net the Internal Project (years) of Return Investment Present Rate Project Required $970,000 $730,000 $670,000 $830,000 Value $176,514 $175,933 $185,782 $129,082 A 6. 16% В 11 15% C 19% 17% The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth.
When choosing between two projects of different scales, which of the following methodologies is best employed? a. Probability index to rank projects b. Equivalent annuities method c. Replacement chain method d. IRR method
Describe the Incremental Analysis for Cost-Only Projects?
5. IRR (S5.3) Write down the equation defining a project's internal rate of return (IRR). In practice, how is IRR calculated?
Why is it important to make the distinction between company required rate of return (WACC) and project required rate of return when evaluating projects?
How do we calculate the PWfor the projects?