Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 21P
To determine
Concept Introduction:
Profitability Index:
Where different investment proposals each involving different initial investments and
PI=![Introduction To Managerial Accounting, Chapter 12, Problem 21P](https://content.bartleby.com/tbms-images/9781259917066/Chapter-12/images/html_95484-13-21p_1.png")
Project profitability index for each investment project.
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Preference Ranking of Investment Projects
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows:
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.
Required:
1. Compute the project profitability index for each project.
2. In order of preference, rank the four projects in terms of:
a. Net present value.
b. Project profitability index.
c. Internal rate of return.
3. Which ranking do you prefer? Why?
SNA company management is considering two competing investment Projects A and B.
Year
Project A
Project B
Initial Investment
1000
1000
1
275
300
2
275
300
3
275
300
4
275
300
5
275
300
DISCOUNT RATE 3.15%
help management to choose the most desirable Project .You must use each technique from 1 to 4 and get the answer?
1)Payback Period Technique.2) Discounted Payback Period Technique.3) Net Present Value Technique4) Profitability Index Technique.
Cooney Co. is evaluating the following mutually exclusive projects. The manager has determined that the appropriate discount rate is
6.2% for all the recommended projects. Rank order the projects based on the profitability index.
Project A
Project B
Project C
(35,000)
(65,000)
(86,000)
Year
0
1
2
3
55,000
40,000
22,000
22,000
44,000
44,000
35,000
Chapter 12 Solutions
Introduction To Managerial Accounting
Ch. 12.A - Basic Present Value Concepts Annual cash inflows...Ch. 12.A - Basic Present value Concepts Julie has just...Ch. 12.A - Prob. 3ECh. 12.A - Prob. 4ECh. 12.A - Basic Present Value Concepts The Atlantic Medical...Ch. 12.A - Prob. 6ECh. 12 - What is the difference between capital budgeting...Ch. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - Prob. 4Q
Ch. 12 - Why are discounted cash flow methods of making...Ch. 12 - Prob. 6QCh. 12 - Identify two simplifying assumptions associated...Ch. 12 - Prob. 8QCh. 12 - Prob. 9QCh. 12 - Prob. 10QCh. 12 - Prob. 11QCh. 12 - Prob. 12QCh. 12 - How is the project profitability index computed,...Ch. 12 - Prob. 14QCh. 12 - Prob. 15QCh. 12 - Prob. 1AECh. 12 - The Excel worksheet form that appears below is to...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 3F15Ch. 12 - Prob. 4F15Ch. 12 - Prob. 5F15Ch. 12 - Prob. 6F15Ch. 12 - Prob. 7F15Ch. 12 - Prob. 8F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 11F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 13F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Payback Method The management of Unter...Ch. 12 - Net Present Value Analysis The management of...Ch. 12 - Internal Rate of Return Wendell’s Donut Shoppe is...Ch. 12 - Uncertain Future Cash Flows Lukow Products is...Ch. 12 - Prob. 5ECh. 12 - Simple Rate of Return Method The management of...Ch. 12 - Prob. 7ECh. 12 - Payback Period and Simple Rate of Return Nicks...Ch. 12 - Prob. 9ECh. 12 - Prob. 10ECh. 12 - Preference Ranking of Investment Projects Oxford...Ch. 12 - Prob. 12ECh. 12 - Payback Period and Simple Rate of Return...Ch. 12 - Comparison of Projects Using Net Present Value...Ch. 12 - Internal Rate of Return and Net Present Value...Ch. 12 - Net Present Value Analysis Windhoek Mines, Ltd.,...Ch. 12 - Net Present Value Analysis; Internal Rate of...Ch. 12 - Net Present Value Analysis Oakmont Company has an...Ch. 12 - Simple Rate of Return; Payback Period Paul Swanson...Ch. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Comprehensive Problem - Lou Barlow, a divisional...Ch. 12 - Prob. 24PCh. 12 - Prob. 25PCh. 12 - Prob. 26PCh. 12 - Net Present Value Analysis In five years, Kent...Ch. 12 - Prob. 28PCh. 12 - Prob. 29P
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- Suppose the following two independent investment opportunities are available to a company. The appropriate discount rate is 8 percent. Year O 1 2 3 Project Alpha -$4,500 b. 2,300 2,200 1,450 a. Compute the profitability index for each of the two projects. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project Alpha Project Beta Project Beta -$ 6,100 1,350 4,500 4,000 Profitability Index Which project(s), if either, should the company accept based on the profitability index rule? Project Alpha O Project Beta Neither project O Both projectsarrow_forwardCarter Company is considering three investment opportunities with the following accounting rates of return: Project Y Project X 13.25% Project Z 10.47% ARR 6.58% Use the decision rule for ARR to rank the projects from most desirable to least desirable. Carter Company's required rate of return is 8%. (1 = most desriable and 3= least desirable. Select whether each project should be accepted or rejected.) C Rank Accept/Reject Project X Project Y Project Z @ # * $ IOL 4 % 2 6 4 & 7 4 8 ( 9 ➤W Oarrow_forwardEvaluate the projects using each of the following criteria, stating which project(s) Carrium Insights Inc. should choose under each criteria and why: i.Discounted Payback ii.Net Present Valuearrow_forward
- Cooney Co. is evaluating the following mutually exclusive projects. The manager has determined that the appropriate discount rate is 6.2% for all the recommended projects. Rank order the projects based on the profitability index. Year Project A Project B Project C 0 (35,000) (65,000) (86,000) 1 - 40,000 44,000 2 - 22,000 44,000 3 55,000 22,000 35,000arrow_forwardConsider the following two independent investment opportunities that are available to Lion, Inc. The appropriate discount rate is 11.7%. Project X Project Y Year 0 1 2 3 $-1,272 544 941 860 $-2.162 909 2,194 1,302 What is the Profitability Index of project Y? (Round answer to 2 decimal places. Do not round intermediate calculations)arrow_forwardThe following table contains information about four projects in which Reynolds Corporation has the opportunity to invest. This information is based on estimates that different managers have prepared about their potential project. (Click the icon to view the projects information.) Requirements 1. Rank the four projects in order of preference by using the a. net present value. d. payback period. b. project profitability index. e. accounting rate of return. c. internal rate of return. 2. Which method(s) do you think is best for evaluating capital investment projects in general? Why? Data table Requirement 1. Rank the projects in order of preference. (a) (b) Net Present Profitability Value Index (c) Internal Rate of Return (d) Payback Period (e) Net Internal Payback Accounting Accounting of Retur 5 Investment Present Life of Rate of Profitability Period in Project Required Value Project Return Project A $205,000 $ 61,770 Rate of Index Years Return 24% 1.30 2.77 19% 1st preferred Project B…arrow_forward
- Project Analysis. Assume that you are evaluating the following three mutually exclusive projects: A. Complete the following analyses. (For the last two lines, Terminal Value, please write in the dollar amount of the terminal value.) B. Compare and explain the conflicting rankings of the NPVs and TRRs versus the IRRs. C. Using different discount rates, is it possible to get different rankings within the NPV calculation? Why or why not? D. If 10 percent is the required return, which project is preferred? E. Which is the fairer representation of these two projects, TRR or IRR? Why?arrow_forwardCooney Co. is evaluating the following mutually exclusive projects. The manager has determined that the appropriate discount rate is 6.20% for all the recommended projects. Rank order the projects based on the internal rate of return. Project A Project B Project C (35,000) (65,000) (86,000) 44,000 Year 0 1 2 3 55,000 40,000 22,000 22,000 44,000 35,000arrow_forwardSuppose the following two independent investment opportunities are available to Fitz, Inc. The appropriate discount rate is 8 percent. Year Project Alpha Project Beta 0 −$5,500 −$7,100 1 2,800 1,600 2 2,700 5,500 3 1,700 4,500 a. Compute the profitability index for each of the two projects. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) b. Which project(s), if either, should the company accept based on the profitability index rule? multiple choice Neither project Project Beta Both projects Project Alphaarrow_forward
- points) possible S Carter Company is considering three investment opportunities with the following accounting rates of return: Project X Project Y Project Z ARR 13.25% 6.58% 10,47% Use the decision rule for ARR to rank the projects from most desirable to least desirable. Carter Company's required rate of return is 8%. (1 = most desriable and 3 = least desirable. Select whether each should be accepted or rejected.) Project Rank Accept/Reject 4 deler "k I % 1 2 3 4 5 6 QWERT A trl Project X Project Y Project Z caps lock shift t fn اب 2 @ Z # S $ alt الالالا C V G & Y B hp 7 H N 8 144 ( 9 ا۔ K M U O O P > ie alt ? 7 4 J backspace pause ctri <arrow_forwardCooper Electronics uses NPV profiles to visually evaluate competing projects. Key data for the two projects under consideration are given in the following table: E. Using these data, graph, on the same set of axes, the NPV profiles for each project using discount rates of 0%, 8%, and the IRR. The IRR of project Terra is %. (Round to two decimal places.) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Terra Firma Initial investment $29,000 $28,000 Operating cash inflows $12,000 $12,000 $7,000 $10,000 Year $9,000 $11,000 $12,000 $8,000 1 2 4 Print Donearrow_forwardPlease see attached:arrow_forward
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