
Concept explainers
Concept Introduction:
Capital budgeting is a planning process used to know whether a long term investment or options like to keep the old machine will be profitable or not involving factors like present value factors.
There are many capital budgeting techniques. The two techniques that will be discussed here is –
1. Payback period of the investment
2.
1. Payback period –
Payback period of the investment is calculated as under –
This is how we calculate payback period in case of even annual net cash inflows.
2. Net present value –
The net present value is calculated as under –
Initial investment can be defined as the cash outlay incurred at the beginning of the product and total present value of cash inflows is computed as under (in case of even cash inflows) –
This is how we calculate net present value of an investment.
Requirement 1
To compute:
Payback period of Investment

Answer to Problem 29QS
Solution:
Payback period of Investment = 5 years
Explanation of Solution
Payback period of the investment is calculated as under –
Given,
• Initial investment = $ 80 million
• Annual net
Thus, the payback period of the investment = 5 years.
Requirement 2
To compute:
Net present value of the investment.

Answer to Problem 29QS
Solution:
Net present value of the investment = $11.952 million
Explanation of Solution
Given,
Initial investment = $ 80 million
Total present value of cash inflows will be calculated as under –
Now, for present value of cash inflows –
Given –
• Annual net
• Number of years = 8 years
• Interest rate or required rate = 8%
Total present value of cash inflows =
Net present value of the investment will be calculated as under –
Initial investment = $ 80 million
Total present value of cash inflows = $ 91.952 million
Thus, the net present value of the investment = $ 11.952 million.
Note – The following PVAF table has been used for referring PVAF @ 8 % for 8 years.
Want to see more full solutions like this?
Chapter 25 Solutions
Loose Leaf for Fundamental Accounting Principles
- Please give me true answer this financial accounting questionarrow_forward4 POINTSarrow_forwardFor the year ended December 31, 2020, Greenhill Enterprises earned an ROI of 10.5%. Sales for the year were $18 million, and the average asset turnover was 2.5. Average stockholders' equity was $3.6 million. Required: a. Calculate Greenhill Enterprises' margin and net income. b. Calculate Greenhill Enterprises' return on equity.arrow_forward
- DURING THE CURRENT YEAR, MERCHANDISE IS SOLD FOR $450,000 CASH AND $1,350,000 ON ACCOUNT. THE COST OF THE MERCHANDISE SOLD IS $1,100,000. WHAT IS THE AMOUNT OF THE GROSS PROFIT?arrow_forwardAt the beginning of 2021, Orion Ltd had accounts receivable of $100,000. At the end of 2021, the company had accounts receivable of $85,000. During 2021, Orion Ltd had total credit sales of $1,500,000. What was this company's average collection period for 2021?arrow_forwardWhat was the net income?arrow_forward
- Bryan owns a fitness center called Peak Performance Gym. During the past year, Bryan sold his facility to purchase a larger building with a parking lot. He received sales proceeds of $140,000 from the buyer. He paid a sales commission of $7,500 to his broker. The building had an original cost of $115,000 and had accumulated depreciation for tax purposes of $18,250. What is Bryan's realized gain or loss on the sale?arrow_forwardDeluxe Auto Parts holds inventory all over the world. Assume that the records for one auto part show the following: Beginning inventory Net purchases $2,20,000 8,00,000 Net sales 11,00,000 Gross profit rate 45% Suppose this inventory, stored in the United States, was lost in a fire. Estimate the amount of the loss to Deluxe Auto Parts. Use the gross profit method.arrow_forwardNeed help with this question solution general accountingarrow_forward
- Do fast answer of this accounting questionsarrow_forwardcost of goods sold from 2019to2021?arrow_forwardSauerbraten Corp. reported 2007 sales ($ in millions) of $2,157 and a cost of goods sold of $1,827. The company uses the LIFO method for inventory valuation. It discloses that if the FIFO inventory valuation method had been used, inventories would have been $63.3 million and $56.8 million higher in 2007 and 2006, respectively. If Sauerbraten used the FIFO method exclusively, it would have reported 2007 gross profit closest to? a. $324. b. $330. c. $337.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





