Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 12, Problem 2MAD
a.
To determine
Compute the expected value of the annual net
b.
To determine
Compute the
c.
To determine
Recommend whether Company S should invest in the equipment based upon parts (a) and (b).
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Consider the following project cash flow.
YEAR
CASH FLOW
0
-1000
1
500
2
500
3
500
4
500
5
500
Use this information to calculate the Internal Rate of Return by linear interpolation(the trial and error method).
WITH WORKING PLEASE
The accounting rate of return (also known as the unadjusted rate of return) can be calculated as: (See your Chapter 25 notes, page 2)
Initial cost of the investment divided by the annual net cash inflow
Initial cost of the investment minus the annual net cash inflow
Average amount of the investment divided by the average annual net income
Average annual net income divided by the average amount of the investment
Present value of net cash inflow divided by the initial cost of the investment
Annual net cash inflow minus the initial cost of the investment
Future value of net cash inflow divided by the initial cost of the investment
Present value of the net cash inflow minus the initial cost of the investment
Which of the following is the correct definition for present value (PV)?
Select one:
a.
The current value of the sum of all the past cash flows given a specified rate of return.
b.
The current value of the sum of all the future profits made by the company with a specified rate of return.
c.
The current value of a future sum of money or stream of cash flows given a specified rate of return.
d.
The future value of the sum of all the future cash flows without a specified rate of return.
Chapter 12 Solutions
Managerial Accounting
Ch. 12 - What are the principal objections to the use of...Ch. 12 - Discuss the principal limitations of the cash...Ch. 12 - Prob. 3DQCh. 12 - Your boss has suggested that a one-year payback...Ch. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - A net present value analysis used to evaluate a...Ch. 12 - Two projects have an identical net present value...Ch. 12 - Prob. 9DQCh. 12 - What are the major disadvantages of the use of the...
Ch. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Average rate of return Determine the average rate...Ch. 12 - Prob. 2BECh. 12 - Prob. 3BECh. 12 - Internal rate of return A project is estimated to...Ch. 12 - Prob. 5BECh. 12 - Average rate of return The following data are...Ch. 12 - Average rate of returncost savings Maui...Ch. 12 - Average rate of returnnew product Hana Inc. is...Ch. 12 - Determine cash flows Natural Foods Inc. is...Ch. 12 - Cash payback period for a service company Janes...Ch. 12 - Cash payback method Lily Products Company is...Ch. 12 - Prob. 7ECh. 12 - Net present value method for a service company...Ch. 12 - Net present value methodannuity for a service...Ch. 12 - Net present value methodannuity Jones Excavation...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Net present value-unequal lives Bunker Hill Mining...Ch. 12 - Prob. 22ECh. 12 - Average rate of return method, net present value...Ch. 12 - Prob. 2PACh. 12 - Net present value method, present value index, and...Ch. 12 - Net present value method, internal rate of return...Ch. 12 - Prob. 5PACh. 12 - Prob. 6PACh. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Net present value method, present value index, and...Ch. 12 - Prob. 4PBCh. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - San Lucas Corporation is considering investment in...Ch. 12 - Prob. 2MADCh. 12 - Prob. 3MADCh. 12 - Prob. 4MADCh. 12 - Prob. 5MADCh. 12 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 12 - Ethics in Action Danielle Hastings was recently...Ch. 12 - Prob. 4TIFCh. 12 - CEO, Worthington Industries (WOR) (a...Ch. 12 - Prob. 6TIFCh. 12 - Prob. 1CMACh. 12 - Staten Corporation is considering two mutually...Ch. 12 - Prob. 3CMACh. 12 - Foster Manufacturing is analyzing a capital...
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
- Assume Home Garden Inc. in MAD 26-5 assigns the following probabilities to the estimated construction cost of the warehouse and annual net cash flows: a. Compute the expected value of the construction cost. b. Compute the expected value of the annual net cash flows. c. Determine the expected net present value of building the distribution warehouse, assuming a desired rate of return of 14% and using the expected values computed in parts (a) and (b). Use the present value tables provided in Appendix A. Round to the nearest dollar. d. Based on your results in part (c), should Home Garden Inc. build the distribution warehouse?arrow_forwardPrepare a cash flow analysis which includes: 1.the initial investment, 2. the annual after-tax operating cash flows, and 3.the terminal year non-operating cash flow in year 5.arrow_forwardFinancial assets management decision-making often involves determination of the Present Value (PV) of the flow of money over time. If a monetary PV is given by: PV = Gt/(1+m)t (i) Identify and explain each of the variables: G, m, and t. (ii) Explain how an increase in m would impact the PV of this financial asset. (iii) Find how much would be required to generate a PV of 890, over a 5 years period, at a constant annual interest rate of 4 percent.arrow_forward
- A characteristic of the payback method is that it: (See your Chapter 25 notes, page 9) Uses accrual accounting inflows in the numerator of the calculation Uses the estimated expected useful life of the asset in the denominator of the calculation Incorporates cash flows received after the payback period has been reached Is based on accounting income Incorporates the time value of money Ignores total project profitabilityarrow_forwardThe formula for calculating net present value (NPV) involves: a) Adding the initial investment and future cash flows b) Discounting future cash flows to the present and subtracting the initial investment c) Dividing future cash flows by the initial investment d) Multiplying future cash flows by the discount ratearrow_forwardPlease answer the following questions 1. _________________ is the discounted net future cash inflows divided by the initial cash outlay. a.Payback b.NRV c.Profitability Index d.IRR 2. __________________________ serves as a framework for measuring performance. a.NRV b.Payback c.Profitability Index d.Balanced Scorecard 3. Which of the following is a performance measures of the balanced scorecard: a.internal Business perspective b.all of the answers are correct c.financial Perspective d.customer perspectivearrow_forward
- PAR Ltd is considering an investment and has determined the following: Expected net cash flows: – Year 1 $65,967 – Year 2 $70,290 – Year 3 $135,391 – Year 4 $103,435 – Year 5 $100,998 Annual depreciation $20,660 Period of investment 5 years Initial investment $611,246 Value at end of the investment period $124,671 Calculate the Accounting Rate of Return. Express your answer in a percentage with 2 decimal places.arrow_forwardPlease answer the following question. In this method, the company compares the amount spent on the investment with the discounted expected future cash inflows. a.Payback b.NRV c.Investment d.IRRarrow_forwardPlease read instructions and answer each question show work.arrow_forward
- Net Present Value Method for a Service Company Carnival (CCL) has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Breeze, can hold up to 3,600 passengers, which can cost $750 million to build. Assume the following additional information: • There will be 340 cruise days per year operated at a full capacity of 3,600 passengers. variable expenses per passenger are estimated to be $100 per cruise day. • The revenue per passenger is expected to be $280 per cruise day. • The fixed expenses for running the ship, other than depreciation, are estimated to be $90,000,000 per year. • The ship has a service life of 10 years, with a residual value of $60,000,000 at the end of 10 years. 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…arrow_forwardJoetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment Annual cash inflows Salvage value of equipment Life of the investment Required rate of return Multiple Choice The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. The internal rate of return of the investment is closest to: O O O 27% 25% 23% $37,000 $ 8,800 $ 21% 0 15 years 10 %arrow_forwardWhat name is given to the time value of money technique that discounts the after-tax cash flows for a project over its life to time period zero using the company’s minimum desired rate of return? a. net present value method b. capital rationing methodc. payback method d. average rate of return method e. accounting rate of return methodarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License