Net Present Value (NPV): NPV is a technique used in capital budgeting to see the project is profitable for the company or not. The acceptance of the project is based on the result of NPV as if it is positive then it should be selected and in the case of negative NPV it should be rejected. Payback period: It is ascertained when cost of project is divided by the annual cash flows of the respective project. The payback period is a method used in capital budgeting. It does not involve the time value of money factor. Discounted payback period: Discounted payback period is the time period in which the company earns back their investment. It is use to determine whether to take this project or not. In this, cash inflow is adjusted according to time value of money. Internal Rate of Return (IRR): IRR is a capital budgeting technique that involves the time value of money concept. The IRR percentage gives the idea about the profitability arises from an investment. The IRR of a project is calculated with the help of NPV calculations. To compute: The NPV.
Net Present Value (NPV): NPV is a technique used in capital budgeting to see the project is profitable for the company or not. The acceptance of the project is based on the result of NPV as if it is positive then it should be selected and in the case of negative NPV it should be rejected. Payback period: It is ascertained when cost of project is divided by the annual cash flows of the respective project. The payback period is a method used in capital budgeting. It does not involve the time value of money factor. Discounted payback period: Discounted payback period is the time period in which the company earns back their investment. It is use to determine whether to take this project or not. In this, cash inflow is adjusted according to time value of money. Internal Rate of Return (IRR): IRR is a capital budgeting technique that involves the time value of money concept. The IRR percentage gives the idea about the profitability arises from an investment. The IRR of a project is calculated with the help of NPV calculations. To compute: The NPV.
Solution Summary: The author explains that NPV is a technique used in capital budgeting to see the project is profitable for the company or not.
Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.
Chapter 21, Problem 21.30E
1 (a)
To determine
Net Present Value (NPV):
NPV is a technique used in capital budgeting to see the project is profitable for the company or not. The acceptance of the project is based on the result of NPV as if it is positive then it should be selected and in the case of negative NPV it should be rejected.
Payback period:
It is ascertained when cost of project is divided by the annual cash flows of the respective project. The payback period is a method used in capital budgeting. It does not involve the time value of money factor.
Discounted payback period:
Discounted payback period is the time period in which the company earns back their investment. It is use to determine whether to take this project or not. In this, cash inflow is adjusted according to time value of money.
Internal Rate of Return (IRR):
IRR is a capital budgeting technique that involves the time value of money concept. The IRR percentage gives the idea about the profitability arises from an investment. The IRR of a project is calculated with the help of NPV calculations.
To compute: The NPV.
1 (b)
To determine
To compute: Payback period.
1 (c)
To determine
To compute: The discounted payback period
1 (d)
To determine
To compute: IRR
2.
To determine
To explain: The comparison and contrast the capital budgeting method.
Nicole is a calendar-year taxpayer who accounts for her business using the cash method. On average, Nicole sends out bills for about $12,000 of her services on the first of each month. The bills are due by the end of the month, and typically 70 percent of the bills are paid on time and 98 percent are paid within 60 days.
a. Suppose that Nicole is expecting a 2 percent reduction in her marginal tax rate next year. Ignoring the time value of money, estimate the tax savings for Nicole if she postpones mailing the December bills until January 1 of next year.
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