Survey of Accounting (Accounting I)
8th Edition
ISBN: 9781305961883
Author: Carl Warren
Publisher: Cengage Learning
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Question
Chapter 15, Problem 1SEQ
To determine
Concept Introduction:
ARR:
Accounting
The formula to calculate ARR is as follows:
Payback Period:
Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual
To choose:
The method of evaluation of capital investment proposals that ignore present value
Expert Solution & Answer
Answer to Problem 1SEQ
C. Both A and B
Explanation of Solution
Explanation for correct answer:
Both the Average rate of return and Cash Payback methods ignore present value for evaluation of capital investment proposals. Hence the correct option is C.
Explanation for incorrect answers:
A. Both the Average rate of return and Cash Payback methods ignore present value for evaluation of capital investment proposals. Hence this option is incorrect.
B. Both the Average rate of return and Cash Payback methods ignore present value for evaluation of capital investment proposals. Hence this option is incorrect.
D. Both the Average rate of return and Cash Payback methods ignore present value for evaluation of capital investment proposals. Hence this option is incorrect.
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Students have asked these similar questions
Methods that ignore the time value of money in capital investment appraisal include which of the following?
a. Net present valueb. Discounted payback
c. Average rate of return
d. All of the above
The methods of evaluating capital investment proposals can be grouped into two general categories referred to as (1) methods that do not use present values and (2) methods that use present values.
True
False
The computations involved in the net present value method of analyzing capital investment proposals are more involved than those for the average rate of return method.
O True
False
Chapter 15 Solutions
Survey of Accounting (Accounting I)
Ch. 15 - Prob. 1SEQCh. 15 - Management is considering a $100,000 investmentin...Ch. 15 - The expected period of time that will elapse...Ch. 15 - A project that will cost $120,000 is estimated to...Ch. 15 - Prob. 5SEQCh. 15 - What are the principal objections to the use 01the...Ch. 15 - Discuss the principal limitations of the cash...Ch. 15 - Prob. 3CDQCh. 15 - Prob. 4CDQCh. 15 - Prob. 5CDQ
Ch. 15 - Prob. 6CDQCh. 15 - Prob. 7CDQCh. 15 - Prob. 8CDQCh. 15 - Prob. 9CDQCh. 15 - Prob. 10CDQCh. 15 - Prob. 11CDQCh. 15 - Prob. 12CDQCh. 15 - Prob. 13CDQCh. 15 - Prob. 14CDQCh. 15 - Prob. 15CDQCh. 15 - Monsanto Company, a large chemical and...Ch. 15 - Average rate of return The following data are...Ch. 15 - Prob. 15.2ECh. 15 - Average rate of return—new product Arrowhead Inc....Ch. 15 - Calculate cash flows Daffodil Inc. is planning to...Ch. 15 - Prob. 15.5ECh. 15 - Cash payback method Bliss Beauty Products ¡s...Ch. 15 - Prob. 15.7ECh. 15 - Prob. 15.8ECh. 15 - Net present value method—annuity Model 99 Hotels...Ch. 15 - Prob. 15.10ECh. 15 - Prob. 15.11ECh. 15 - Prob. 15.12ECh. 15 - Prob. 15.13ECh. 15 - Average rate of return, cash payback period, net...Ch. 15 - Prob. 15.15ECh. 15 - Internal rate of return method The internal rate...Ch. 15 - Prob. 15.17ECh. 15 - Internal rate of return method—two projects Strahn...Ch. 15 - Prob. 15.19ECh. 15 - Prob. 15.20ECh. 15 - Prob. 15.21ECh. 15 - Prob. 15.22ECh. 15 - Average rate of return method, net present value...Ch. 15 - Average rate of return method, net present value...Ch. 15 - Prob. 15.2.1PCh. 15 - Cash payback period, net present value method, and...Ch. 15 - Prob. 15.3.1PCh. 15 - Prob. 15.3.2PCh. 15 - Prob. 15.3.3PCh. 15 - Prob. 15.4.1PCh. 15 - Prob. 15.4.2PCh. 15 - Prob. 15.4.3PCh. 15 - Prob. 15.5.1PCh. 15 - Prob. 15.5.2PCh. 15 - Prob. 15.5.3PCh. 15 - Prob. 15.6.1PCh. 15 - Prob. 15.6.2PCh. 15 - Prob. 15.6.3PCh. 15 - Prob. 15.6.4PCh. 15 - Capital rationing decision involving four...Ch. 15 - Prob. 15.6.6PCh. 15 - Prob. 15.6.7PCh. 15 - Prob. 15.6.8PCh. 15 - Prob. 15.1.1MBACh. 15 - Prob. 15.1.2MBACh. 15 - Financial leverage MicrosoCortrepotied (MSFT)...Ch. 15 - Prob. 15.1.4MBACh. 15 - Prob. 15.2.1MBACh. 15 - Prob. 15.2.2MBACh. 15 - Prob. 15.2.3MBACh. 15 - Prob. 15.3.1MBACh. 15 - Prob. 15.3.2MBACh. 15 - Prob. 15.3.3MBACh. 15 - Prob. 15.4MBACh. 15 - Prob. 15.5.1MBACh. 15 - Financial leverage Costco Wholesale Corporation...Ch. 15 - Prob. 15.5.3MBACh. 15 - Prob. 15.5.4MBACh. 15 - Ethics and professional conduct in business Erin...Ch. 15 - Prob. 15.2.1CCh. 15 - Prob. 15.2.2CCh. 15 - Prob. 15.2.3CCh. 15 - Prob. 15.3.1CCh. 15 - Prob. 15.3.2CCh. 15 - Qualitative issues in investment analysis The...Ch. 15 - Prob. 15.5.1CCh. 15 - Prob. 15.5.2CCh. 15 - Prob. 15.6C
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Similar questions
- The third step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would not be an acceptable baseline criterion? A. payback method B. accounting rate of return C. internal rate of return D. inventory turnoverarrow_forwardWhich of the following investment appraisal techniques does not involve discounting? a. NPV b. Discounted payback period c. ARR d. IRRarrow_forwardWhich of the following methods for evaluating capital investment proposals reduces the expected future net cash flows originating from the proposals to their present values and computes a net present value? a. average rate of return b. net present value c. internal rate of return d. cash paybackarrow_forward
- Which of the following are present value methods of analyzing capital investment proposals? a. internal rate of return and average rate of return b. average rate of return and net present value c. net present value and cash payback d. net present value and internal rate of returnarrow_forwardOne of the following methods are not a method to evaluate projects: Return on investment Discounted payback method Return on capital employed Net present value method O Return on equityarrow_forwardThe third step for making a capital investment decision is to establish baseline criteria for alternatives. Which of the following would not be an acceptable baseline criterion? A) accounting rate of return B) payback method C) inventory turnover D) internal rate of returnarrow_forward
- Question Content Area Which of the following is a method of analyzing capital investment proposals that ignores present value? a. average rate of return b. net present value c. discounted cash flow d. internal rate of returnarrow_forwardExplain what is meant by the internal rate of return of an investment and discuss its relationship to the NPV of an investment. Explain the problems posed for the use of the IRR when it is necessary (i) to choose between two investments and when (ii) investments are characterised by negative net cash flows at the end of their lives. Discuss and evaluate the use of the payback period as an investment criterion.arrow_forwardWhich of the following are two methods of analyzing capital investment proposals that both ignore present value?arrow_forward
- If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable. Group of answer choices True Falsearrow_forwardWhich methods of evaluating a capital investment project ignore the time value of money? Multiple Choice Net present volue and accounting rate of retum, Accounting rate of return and internal rate of return. Internal rate of return and payback perlod.arrow_forwardGenerally, the ____ is considered to be a more realistic reinvestment rate than the ____. a. risk-free rate; cost of capital b. risk-free rate; internal rate of return c. cost of capital; internal rate of return d. internal rate of return; cost of capitalarrow_forward
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