You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze six proposed capital investments. Each project has a cost of $1,000, and the required rate of return for each is 12%, determine for each project (a) the payback period, (b) the net present value, (c) the profitability index, and (d) the internal rate of return. Assume under MACRS the asset falls in the three-year property class and that the corporate tax rate is 25 percent. You are limited to a maximum expenditure of $3000 only for this capital budgeting period. Which projects you will accept and why? Justify your suggestions

You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze six proposed capital investments. Each project has a cost of $1,000, and the required rate of return for each is 12%, determine for each project (a) the payback period, (b) the net present value, (c) the profitability index, and (d) the internal rate of return. Assume under MACRS the asset falls in the three-year property class and that the corporate tax rate is 25 percent. You are limited to a maximum expenditure of $3000 only for this capital budgeting period. Which projects you will accept and why? Justify your suggestions

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

You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to
analyze six proposed capital investments. Each project has a cost of $1,000, and the required rate of
return for each is 12%, determine for each project (a) the payback period, (b) the net present value,
(c) the profitability index, and (d) the internal rate of return. Assume under MACRS the asset falls in
the three-year property class and that the corporate tax rate is 25 percent. You are limited to a
maximum expenditure of $3000 only for this capital budgeting period. Which projects you will
accept and why? Justify your suggestions
Project A
Project B
Project C
Project D
Project E
Project F
Investment
-1000
-1000
-1000
-1000
-1000
-1000
1
150
200
250
800
900
1000
2
350
300
250
350
300
200
3
400
500
600
200
150
100
4
700
650
600
200
150
50
12 Capital Budgeting and Estimating Cash Flows
Table 12.2
PROPERTY CLASS
RECOVERY
YEAR
MACRS depreciation
percentages
3-YEAR
5-YEAR
7-YEAR
10-YEAR
20.00%
32.00
14.29%
24.49
10.00%
18.00
33.33%
44.45
3.
14.81
19.20
17.49
14.40
4.
7.41
11.52
12.49
11.52
5.
11.52
8.93
9.22
5.76
8.92
7.37
8.93
6.55
8
4.46
6.55
6.56
6.55
3.28
9.
10
11
Totals
100.00%
100.00%
100.00%
100.00%

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