
Concept explainers
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
ARR: Accounting
The formula to calculate ARR is as follows:
NPV:
IRR:
Profitability Index: Profitability Index is similar to the NPV method to evaluate a project. It calculates the ratio between the present value cash inflow and present value of
1. Calculation of Payback, ARR, NPV, IRR and the profitability index
To determine: The Payback, ARR, NPV, IRR and the profitability index for the given project
2. Decision for investment in the project:
To decide: Whether to invest in the given project

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Chapter 26 Solutions
ACCOUNTING PRINCIPLES V1 6/17 >C<
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