ACCOUNTING,CHAP.1-13
26th Edition
ISBN: 9781305088412
Author: WARREN
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 26, Problem 26.1APR
Average
The capital Investment committee of Touch of Eden Landscaping Company is considering two capital investments. The estimated income from operations and net
Each project requires an investment of $60,000. Straight-line
Instructions
1. Compute the following:
a. The average rate of
b. The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 2). Round present values to the nearest dollar.
2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments .
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Average Rate of Return Method, Net Present Value Method, and Analysis for a service company
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows:
Front-End Loader
Year
1
2
3
4
5
Total
Year
1
2
3
4
5
6
7
8
9
10
Required:
Operating
Income
$62,000
62,000
62,000
62,000
62,000
$310,000
Each project requires an investment of $620,000. Straight-line depreciation.will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis.
Present Value of $1 at Compound Interest
6%
10%
15%
0.943
0.909
0.870
0.890
0.826
0.756
0.840
0.751
0.658
0.792
0.683
0.636
0.572
0.747
0.621
0.567 0.497
0.705
0.564 0.507 0.432
0.665
0.513
0.452 0.376
0.627
0.467
0.404
0.327
0.592
0.361
0.284
0.558
0.322 0.247
Front-End Loader
Greenhouse
0.424
Net Cash
Flow
$187,000
187,000
187,000
0.386
187,000
187,000
$935,000…
Average rate of return method, net present value method, and analysisThe capital investment committee of Nature's Portrait LandscapingCompany is considering two capital investments. The estimated incomefrom operations and net cash flows from each investment are as follows:
Each project requires an investment of $75,000. Straight-linedepreciation will be used, and no residual value is expected. Thecommittee has selected a rate of 12% for purposes of the net presentvalue analysis.
Instructions1. Compute the following:a. The average rate of return for each investment. Round to onedecimal place.b. The net present value for each investment. Use the present valueof $1 table appearing in this chapter (Exhibit 2). Round present values to the nearest dollar.2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.
A company is considering three alternative investment projects with different net cash flows. The present value of net cash flows is
calculated using Excel and the results follow.
Potential Projects
Present value of net cash flows (excluding initial investment)
Initial investment
Project A
$ 8,328
(10,000)
Project B
$ 10,809
(10,000)
Project C
$ 10,685
(10,000)
a. Compute the net present value of each project.
b. If the company accepts all positive net present value projects, which of these will it accept?
c. If the company can choose only one project, which will it choose on the basis of net present value?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Compute the net present value of each project.
Potential Projects
Project A
Project B
Project C
Present value of net cash flows
Initial investment
Net present value
Chapter 26 Solutions
ACCOUNTING,CHAP.1-13
Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Prob. 3DQCh. 26 - Your boss has suggested that a one-year payback...Ch. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - A net present value analysis used to evaluate a...Ch. 26 - Two projects haw an identical net present value of...Ch. 26 - Prob. 9DQCh. 26 - What are the major disadvantages of the use of the...
Ch. 26 - Prob. 11DQCh. 26 - Give an example of a qualitative factor that...Ch. 26 - Prob. 26.1APECh. 26 - Average rate of return Determine the average rate...Ch. 26 - Prob. 26.2APECh. 26 - Cash payback period A project has estimated annual...Ch. 26 - Prob. 26.3APECh. 26 - Net present value A project has estimated annual...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Prob. 26.5APECh. 26 - Prob. 26.5BPECh. 26 - Average rate of return The following data are...Ch. 26 - Average rate of returncost savings Midwest...Ch. 26 - Average rate of return-new product Galactic Inc....Ch. 26 - Prob. 26.4EXCh. 26 - Prob. 26.5EXCh. 26 - Cash payback method Lily Products Company is...Ch. 26 - Prob. 26.7EXCh. 26 - Prob. 26.8EXCh. 26 - Prob. 26.9EXCh. 26 - Prob. 26.10EXCh. 26 - Prob. 26.11EXCh. 26 - Prob. 26.12EXCh. 26 - Net present value method and present value index...Ch. 26 - Prob. 26.14EXCh. 26 - Cash payback period, net present value analysis,...Ch. 26 - Internal rate of return method The internal rate...Ch. 26 - Prob. 26.17EXCh. 26 - Internal rate of return methodtwo projects Munch N...Ch. 26 - Prob. 26.19EXCh. 26 - Prob. 26.20EXCh. 26 - Prob. 26.21EXCh. 26 - Prob. 26.22EXCh. 26 - Average rate of return method, net present value...Ch. 26 - Cash payback period, net present value method, and...Ch. 26 - Net present value method, present value index, and...Ch. 26 - Prob. 26.4APRCh. 26 - Alternative capital investments The investment...Ch. 26 - Capital rationing decision for a service company...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Prob. 26.2BPRCh. 26 - Prob. 26.3BPRCh. 26 - Net present value method, internal rate of return...Ch. 26 - Prob. 26.5BPRCh. 26 - Capital rationing decision for a service company...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Prob. 26.2CPCh. 26 - Global Electronics Inc. invested 1,000,000 to...Ch. 26 - Qualitative issues in investment analysis The...Ch. 26 - Prob. 26.5CP
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
- Net present value method, internal rate of return method, and analysis for a service company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The wind turbines require an investment of 887,600, while the biofuel equipment requires an investment of 911,100. No residual value is expected from either project. Instructions 1. Compute the following for each project: A. The net present value. Use a rate of 6% and the present value of an annuity table appearing in Exhibit 5 of this chapter. B. A present value index. (Round to two decimal places.) 2. Determine the internal rate of return for each project by (A) computing a present value factor for an annuity of 1 and (B) using the present value of an annuity of 1 table appearing in Exhibit 5 of this chapter. 3. What advantage does the internal rate of return method have over the net present value method in comparing projects?arrow_forwardNet present value method, present value index, and analysis for a service company First United Bank Inc. is evaluating three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows: Instructions 1. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each project. Use the present value table appearing in Exhibit 2 of this chapter. 2. Determine a present value index for each project. (Round to two decimal places.) 3. Which project offers the largest amount of present value per dollar of investment? Explain.arrow_forwardThere are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.arrow_forward
- A company is considering three alternative investment projects with different net cash flows. The present value of net cash flows is calculated using Excel and the results follow. Potential Projects Present value of net cash flows (excluding initial investment) Initial investment Project A $ 11,226 (10,000) Project B $ 10,568 (10,000) a. Compute the net present value of each project. b. If the company accepts all positive net present value projects, which of these will it accept? c. If the company can choose only one project, which will it choose on the basis of net present value? Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the net present value of each project. Potential Projects Project A Project B Project C Present value of net cash flows Initial investment Net present value $ $ $arrow_forwardAndrew Oxnard, chief financial officer, has been asked by Harry Pendel, chief executive officer and co-founder of Pendel & Braithwaite, Ltd. (P&B), to analyze two capital investment projects (projects A and B), which are expected to generate the following profit (p)streams: Profit Streams for Projects A and B period ?? ($) ?? ($) 1 100,000 350,000 2 200,000 300,000 3 250,000 200,000 4 300,000 100,000 5 325,000 100,000 Total 1,175,000 1,050,000 Profits are realized at the end of each period. Assuming that P&B is a profit maximizer if the discount rate for both projects is 12%, which of the two projects should be adopted?arrow_forwardNile Inc. wants to choose the bettter of two mutually exclusive projects that expand warehouse capacity. The projects cash flows are shown in the following table attached. The cost of capital is 14% a. Calculate the IRR for each of the projects . Assess the acceptabiity of each project on the basis of the IRRs. b. Which project is preferred?arrow_forward
- Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% return from its investments. For each alternative project, compute the (a) net present value and (b) profitability index. (Round your answers in part b to two decimal places.) If the company can only select one project, which should it choose?arrow_forwardFollowing is information on two alternative investment projects being considered by Tiger Company. The company requires a 7% return from its investments (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided.) Initial investment Net cash flows in: Year 1 Year 2 Year 3 Required A Required B Project X1 Year 11 Year 2 Year 3 a. Compute each project's net present value. b. Compute each project's profitability index. c. If the company can choose only one project, which should it choose on the basis of profitability index? Totals Initial investment Net present value Complete this question by entering your answers in the tabs below. Project X2 Year 1 Year 2 Year 3 Totais Initial investment S Project X1 $ (116,000) Compute each project's net present value. (Round your final answers to the nearest dollar) Net Cash Flows Present Value of Net Cash Flows S 43,000 53,500 78,500 Required C O 0 Present Value of 1 at 7% Project X2 $ (192,000) $ 87,000 77,000…arrow_forwardCompany A has provided figures for two investment projects, only one of which may be chosen. These are the calculations based on the figures: Payback Period The Accounting Rate of Return / Return on Capital Employed Net Present Value Project A 2 years 4 months 27.08% £63,705 Project B 2 years 7 months 39.47% £74.971 Analyse and provide recommendations as to what project needs to be chosen based on the calculations above.arrow_forward
- Hararrow_forwardFollowing is information on two alternative investment projects being considered by Tiger Company. The company requires a 5% return from its investments. Project X1 Project X2 Initial investment $ (112,000) $ (184,000) Net cash flows in: Year 1 41,000 84,000 Year 2 51,500 74,000 Year 3 76,500 64,000 Compute the internal rate of return for each of the projects using Excel functions. Based on internal rate of return, indicate whether each project is acceptable. (Round your answers to 2 decimal places.)arrow_forwardplease answer in text form and in proper format answer with must explanation , calculation for each part and steps clearlyarrow_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,
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher: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,
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Profitability index; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Md5ocNqKHq8;License: Standard Youtube License