The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output. Introduction: Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value. Payback period refers to the number of periods it will take to recover the initial investments. Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value. Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

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Answer 1

Question

Chapter 11, Problem 16QP

a)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output.

Introduction:

Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value.

Payback period refers to the number of periods it will take to recover the initial investments.

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value.

Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

b)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

c)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the financial breakeven level of output.

Introduction:

Financial breakeven is a point that occurs at the time when a particular project breaks even on a financial basis. This means that the net present value is zero.

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7. The NPV and payback period What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. Year Cash Flow Year 1 $375,000 Year 2 $475,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $345,386 $328,117 $414,463 $362,655

7. The NPV and payback period What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. Year Cash Flow Year 1 $300,000 Year 2 $450,000 Year 3 $500,000 Year 4 $500,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $470,812 $449,412 $513,613 $428,011 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not take the time value of money into account. The payback period is calculated using net…

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Answer 2

Question

Chapter 11, Problem 16QP

a)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output.

Introduction:

Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value.

Payback period refers to the number of periods it will take to recover the initial investments.

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value.

Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

b)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

c)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the financial breakeven level of output.

Introduction:

Financial breakeven is a point that occurs at the time when a particular project breaks even on a financial basis. This means that the net present value is zero.

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Answer 3

Question

Chapter 11, Problem 16QP

a)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output.

Introduction:

Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value.

Payback period refers to the number of periods it will take to recover the initial investments.

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value.

Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

b)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

c)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the financial breakeven level of output.

Introduction:

Financial breakeven is a point that occurs at the time when a particular project breaks even on a financial basis. This means that the net present value is zero.

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Answer 4

Question

Chapter 11, Problem 16QP

a)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output.

Introduction:

Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value.

Payback period refers to the number of periods it will take to recover the initial investments.

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value.

Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

b)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

c)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the financial breakeven level of output.

Introduction:

Financial breakeven is a point that occurs at the time when a particular project breaks even on a financial basis. This means that the net present value is zero.

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Answer 5

Chapter 11, Problem 16QP

a)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output.

Introduction:

Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value.

Payback period refers to the number of periods it will take to recover the initial investments.

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value.

Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

b)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

c)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the financial breakeven level of output.

Introduction:

Financial breakeven is a point that occurs at the time when a particular project breaks even on a financial basis. This means that the net present value is zero.

Answer 6

Chapter 11, Problem 16QP

a)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output.

Introduction:

Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value.

Payback period refers to the number of periods it will take to recover the initial investments.

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value.

Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

Answer 7

Chapter 11, Problem 16QP

a)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the accounting break even level of output.

Introduction:

Internal rate of return (IRR) is a projected rate of return for a particular project based on the given incremental cash flows of the project. This method considers all the cash flows of the particular project and adjusts the time value of money like the net present value.

Payback period refers to the number of periods it will take to recover the initial investments.

Net present value (NPV) refers to the discounted value of the future cash flows at present. The company should accept the project even if the net present value is positive or greater than zero. If there are two mutually exclusive projects, then the company has to select the project that has a higher net present value.

Accounting breakeven is a sales point at which, there is no profit or loss. It is the most widely used measure of the breakeven point.

Answer 8

b)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

Answer 9

b)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

Answer 10

c)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the financial breakeven level of output.

Introduction:

Financial breakeven is a point that occurs at the time when a particular project breaks even on a financial basis. This means that the net present value is zero.

Answer 11

c)

Summary Introduction

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the financial breakeven level of output.

Introduction:

Financial breakeven is a point that occurs at the time when a particular project breaks even on a financial basis. This means that the net present value is zero.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 11.1 - Prob. 11.1ACQ Ch. 11.1 - What are some potential sources of value in a new...Ch. 11.2 - Prob. 11.2ACQ Ch. 11.2 - What are the drawbacks to the various types of...Ch. 11.3 - How are fixed costs similar to sunk costs?Ch. 11.3 - What is net income at the accounting break-even...Ch. 11.3 - Why might a financial manager be interested in the...Ch. 11.4 - If a project breaks even on an accounting basis,...Ch. 11.4 - If a project breaks even on a cash basis, what is...Ch. 11.4 - Prob. 11.4CCQ

Solution Summary: The author determines the internal rate of return, payback period, and net present value of a project based on the accounting break even level of output.

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.

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Chapter 11 Solutions

Solution Summary: The author determines the internal rate of return, payback period, and net present value of a project based on the accounting break even level of output.

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output Introduction: Cash breakeven specifies a sales level which can result in a zero operating cash flow.

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Chapter 11 Solutions

To determine: The internal rate of return (IRR) of the project, payback period, and net present value of the project based on the cash breakeven level of output

Introduction:

Cash breakeven specifies a sales level which can result in a zero operating cash flow.