Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 26, Problem 4CMA
To determine
Compute the payback period for the project.
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Foster Manufacturing is analyzing a capital investment project that is forecast to produce the following cash flows and net income:
Which of the following statements is true? The internal rate of return is the rate of return of an investment project over its useful life. When the net cash inflow is the same
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Consider the following two mutually exclusive projects (W and Z).
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Whichever project you choose, if any, you require a 12 percent return on your investment.(a) Calculate the payback period for each project.(b) Calculate the net present value (NPV) of each project(c) Based on your answers in (a) and (b), which project will you finally choose? Explain.
Chapter 26 Solutions
Financial And Managerial Accounting
Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Why would the average rate of return differ from...Ch. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - Prob. 7DQCh. 26 - Two projects have an identical net present value...Ch. 26 - Prob. 9DQCh. 26 - What are the major disadvantages of the use of the...
Ch. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Average rate of return Determine the average rate...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Prob. 3BECh. 26 - Internal rate of return A project is estimated to...Ch. 26 - Net present valueunequal lives Project 1 requires...Ch. 26 - Average rate of return The following data are...Ch. 26 - Average rate of returncost savings Maui...Ch. 26 - Average rate of returnnew product Hana Inc. is...Ch. 26 - Determine cash flows Natural Foods Inc. is...Ch. 26 - Prob. 5ECh. 26 - Cash payback method Lily Products Company is...Ch. 26 - Prob. 7ECh. 26 - Prob. 8ECh. 26 - Net present value methodannuity for a service...Ch. 26 - Net present value methodannuity Jones Excavation...Ch. 26 - Prob. 11ECh. 26 - Prob. 12ECh. 26 - Net present value method and present value index...Ch. 26 - Average rate of return, cash payback period, net...Ch. 26 - Prob. 15ECh. 26 - Internal rate of return method The internal rate...Ch. 26 - Prob. 17ECh. 26 - Internal rate of return methodtwo projects Munch N...Ch. 26 - Net present value method and internal rate of...Ch. 26 - Identify error in capital investment analysis...Ch. 26 - Prob. 21ECh. 26 - Prob. 22ECh. 26 - Prob. 1PACh. 26 - Cash payback period, net present value method, and...Ch. 26 - Prob. 3PACh. 26 - Net present value method, internal rate of return...Ch. 26 - Alternative capital investments The investment...Ch. 26 - Capital rationing decision for a service company...Ch. 26 - Prob. 1PBCh. 26 - Prob. 2PBCh. 26 - Net present value method, present value index, and...Ch. 26 - Net present value method, internal rate of return...Ch. 26 - Prob. 5PBCh. 26 - Clearcast Communications Inc. is considering...Ch. 26 - San Lucas Corporation is considering investment in...Ch. 26 - Assume San Lucas Corporation in MAD 26-1 assigns...Ch. 26 - Prob. 3MADCh. 26 - Prob. 4MADCh. 26 - Home Garden Inc. is considering the construction...Ch. 26 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Prob. 4TIFCh. 26 - Prob. 5TIFCh. 26 - Prob. 6TIFCh. 26 - Foster Manufacturing is analyzing a capital...Ch. 26 - Staten Corporation is considering two mutually...Ch. 26 - Prob. 3CMACh. 26 - Prob. 4CMA
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- Calculate the cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?arrow_forwardCalculate the project cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?arrow_forwardWhich of the following comes closest to the net present value (NPV) of a project whose initial investment is $5 and which produces two cash flows: the first at the end of year 2 of $3 and the second at the end of year 4 of $7? The required rate of return is 13%? Select one: a. $1.84 b. $0 c. $1.64 d. $2.05 e. $2.26arrow_forward
- Prepare a cashflow forecast, Use investment appraisal techniques to calculate Net Present Value (NPV), Return on Capital and Payback Period. Thank you!arrow_forwardBenihana has prepared the following estimates provided in the table below for the project under consideration. Calculate the payback period, the discounted payback period, net present value and internal rate of return. 8 Cost of Capital 11.00% 10 Cash Flows Project A 124,071 28,993 11 Year 12 Initial Investment (time 0) 13 14 2. 28,630 15 48,568 16 4 31,173 17 5 84,078 18 19 20 21 22 23 24arrow_forwardA firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: -$25,000 today (t=0); $11,000 after one year (t=1), 17,000 after two years (t=2); and 10,000 after three years (t=3). What is the Internal Rate of Return (“IRR”) for this project?arrow_forward
- A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 28,400 1 12,400 2 15,400 3 11,400 If the required return is 15 percent, what is the IRR for this project? Should the firm accept the project?arrow_forwardThe net cash flow per year for the investment projects A and B, is presented in the table below. Expected Net Cash Flow ($) Project 0 1 2 3 4 A -10,000 6500 3000 3000 1000 B -10,000 3500 3500 3500 3500 Calculate the NPV, IRR, PI, and PVR for the cash flows given in the following table. Assume the minimum acceptable rate of return of 8%. Which projects should be accepted if they are independent projects? Would the selection of the projects change if the cost of capital were 12%?arrow_forwardConsider the following project balance profiles for proposed investment projects. Statement 1-For Project A, the cash now at the end of year 2 is $100.Statement 2-For Project C, its net future worth at the end of year 2 is $150.Statement 3-For Project B, the interest rate used is 25%.Statement 4-For Project A, the rate of return should be greater than 15%.Which of the statement(s) above is (are) correct?(a) Just Statements 1 and 2(b) Just Statements 2 and 3(c) Just Statements 1 and 3( d) Just Statements 2, 3, and 4arrow_forward
- Compute the payback statistic for Project Y and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 11 percent and the maximum allowable payback is one year. Time: 0 1 2 3 4 5 Cash flow: −100 75 100 300 75 200arrow_forwardA firm evaluates all of its projects by using the NPV decision rule. Year Cash Flow 0 −$ 28,000 1 24,000 2 13,000 3 6,000 a. At a required return of 28 percent, what is the NPV for this project? b. At a required return of 35 percent, what is the NPV for this project?arrow_forwardA firm evaluates a project with the following cash flows. The firm has a 2 year payback period criteria and a required return of 12 percent. Year Cash flow (OMR) year 0: -26,000, year 1: 18,000, year 2: 10,000, year 3: 7,000, year 4: -15,000, year 5: 9,000. 11. What is the net present value for the project? 12. What is the payback period for the project? 13. What is the discounted payback period for the project? 14. What is the profitability index for the project? 15. Given your analysis, should the firm accept or reject the project?arrow_forward
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