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 cash inflow from the project. The formula to calculate the Payback period is as follows: P a y b a c k P e r i o d = I n i t i a l I n v e s t m e n t A n n u a l C a s h inf l o w ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment. The formula to calculate ARR is as follows: A R R = A v e r a g e A c c o u n t i n g p r o f i t s A v e r a g e I n v e s t m e n t NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows: N P V = P r e s e n t v a l u e o f c a s h i n f l o w s – P r e s e n t v a l u e o f c a s h o u t f l o w s IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method. 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 cash outflow . A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows: P r o f i t a b i l i t y i n d e x = P r e s e n t v a l u e c a s h i n f l o w P r e s e n t v a l u e o f c a s h o u t f l o w 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

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Answer 1

Question

Chapter 26, Problem P26.35BPGB

To determine

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 cash inflow from the project. The formula to calculate the Payback period is as follows:

$P a y b a c k P e r i o d = \frac{I n i t i a l I n v e s t m e n t}{A n n u a l C a s h \inf l o w}$

ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

$A R R = \frac{A v e r a g e A c c o u n t i n g p r o f i t s}{A v e r a g e I n v e s t m e n t}$

NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$N P V = P r e s e n t v a l u e o f c a s h i n f l o w s - P r e s e n t v a l u e o f c a s h o u t f l o w s$

IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

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 cash outflow. A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows:

$P r o f i t a b i l i t y i n d e x = \frac{P r e s e n t v a l u e c a s h i n f l o w}{P r e s e n t v a l u e o f c a s h o u t f l o w}$

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

To determine

2. Decision for investment in the project:

To decide: Whether to invest in the given project

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Mark purchased 200 shares of stock for $40 per share. During the year, he received $500 in dividends. He recently sold the stock for $55 per share. What was Mark's return on the stock? a) $3,500 b) $4,000 c) $3,900 d) $4,500

Summit Industries has a normal capacity of 30,000 direct labor hours. The company's variable costs are $42,000, and its fixed costs are $18,000 when running at normal capacity. What is the standard manufacturing overhead rate per unit? a) $1.50 b) $1.60 c) $2.00 d) $2.10

Answer 2

Question

Chapter 26, Problem P26.35BPGB

To determine

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 cash inflow from the project. The formula to calculate the Payback period is as follows:

$P a y b a c k P e r i o d = \frac{I n i t i a l I n v e s t m e n t}{A n n u a l C a s h \inf l o w}$

ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

$A R R = \frac{A v e r a g e A c c o u n t i n g p r o f i t s}{A v e r a g e I n v e s t m e n t}$

NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$N P V = P r e s e n t v a l u e o f c a s h i n f l o w s - P r e s e n t v a l u e o f c a s h o u t f l o w s$

IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

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 cash outflow. A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows:

$P r o f i t a b i l i t y i n d e x = \frac{P r e s e n t v a l u e c a s h i n f l o w}{P r e s e n t v a l u e o f c a s h o u t f l o w}$

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

To determine

2. Decision for investment in the project:

To decide: Whether to invest in the given project

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 26, Problem P26.35BPGB

To determine

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 cash inflow from the project. The formula to calculate the Payback period is as follows:

$P a y b a c k P e r i o d = \frac{I n i t i a l I n v e s t m e n t}{A n n u a l C a s h \inf l o w}$

ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

$A R R = \frac{A v e r a g e A c c o u n t i n g p r o f i t s}{A v e r a g e I n v e s t m e n t}$

NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$N P V = P r e s e n t v a l u e o f c a s h i n f l o w s - P r e s e n t v a l u e o f c a s h o u t f l o w s$

IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

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 cash outflow. A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows:

$P r o f i t a b i l i t y i n d e x = \frac{P r e s e n t v a l u e c a s h i n f l o w}{P r e s e n t v a l u e o f c a s h o u t f l o w}$

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

To determine

2. Decision for investment in the project:

To decide: Whether to invest in the given project

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 26, Problem P26.35BPGB

To determine

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 cash inflow from the project. The formula to calculate the Payback period is as follows:

$P a y b a c k P e r i o d = \frac{I n i t i a l I n v e s t m e n t}{A n n u a l C a s h \inf l o w}$

ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

$A R R = \frac{A v e r a g e A c c o u n t i n g p r o f i t s}{A v e r a g e I n v e s t m e n t}$

NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$N P V = P r e s e n t v a l u e o f c a s h i n f l o w s - P r e s e n t v a l u e o f c a s h o u t f l o w s$

IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

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 cash outflow. A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows:

$P r o f i t a b i l i t y i n d e x = \frac{P r e s e n t v a l u e c a s h i n f l o w}{P r e s e n t v a l u e o f c a s h o u t f l o w}$

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

To determine

2. Decision for investment in the project:

To decide: Whether to invest in the given project

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 26, Problem P26.35BPGB

To determine

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 cash inflow from the project. The formula to calculate the Payback period is as follows:

$P a y b a c k P e r i o d = \frac{I n i t i a l I n v e s t m e n t}{A n n u a l C a s h \inf l o w}$

ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

$A R R = \frac{A v e r a g e A c c o u n t i n g p r o f i t s}{A v e r a g e I n v e s t m e n t}$

NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$N P V = P r e s e n t v a l u e o f c a s h i n f l o w s - P r e s e n t v a l u e o f c a s h o u t f l o w s$

IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

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 cash outflow. A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows:

$P r o f i t a b i l i t y i n d e x = \frac{P r e s e n t v a l u e c a s h i n f l o w}{P r e s e n t v a l u e o f c a s h o u t f l o w}$

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

To determine

2. Decision for investment in the project:

To decide: Whether to invest in the given project

Answer 6

Chapter 26, Problem P26.35BPGB

To determine

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 cash inflow from the project. The formula to calculate the Payback period is as follows:

$P a y b a c k P e r i o d = \frac{I n i t i a l I n v e s t m e n t}{A n n u a l C a s h \inf l o w}$

ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

$A R R = \frac{A v e r a g e A c c o u n t i n g p r o f i t s}{A v e r a g e I n v e s t m e n t}$

NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$N P V = P r e s e n t v a l u e o f c a s h i n f l o w s - P r e s e n t v a l u e o f c a s h o u t f l o w s$

IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

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 cash outflow. A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows:

$P r o f i t a b i l i t y i n d e x = \frac{P r e s e n t v a l u e c a s h i n f l o w}{P r e s e n t v a l u e o f c a s h o u t f l o w}$

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

Answer 7

Chapter 26, Problem P26.35BPGB

To determine

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 cash inflow from the project. The formula to calculate the Payback period is as follows:

$P a y b a c k P e r i o d = \frac{I n i t i a l I n v e s t m e n t}{A n n u a l C a s h \inf l o w}$

ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

$A R R = \frac{A v e r a g e A c c o u n t i n g p r o f i t s}{A v e r a g e I n v e s t m e n t}$

NPV: Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$N P V = P r e s e n t v a l u e o f c a s h i n f l o w s - P r e s e n t v a l u e o f c a s h o u t f l o w s$

IRR: Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

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 cash outflow. A project should be accepted it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is a follows:

$P r o f i t a b i l i t y i n d e x = \frac{P r e s e n t v a l u e c a s h i n f l o w}{P r e s e n t v a l u e o f c a s h o u t f l o w}$

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

Answer 8

To determine

2. Decision for investment in the project:

To decide: Whether to invest in the given project

Answer 9

To determine

2. Decision for investment in the project:

To decide: Whether to invest in the given project

Answer 10

Expert Solution & Answer

Answer 11

Expert Solution & Answer

Answer 12

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Answer 13

Ch. 26 - Prob. 1QC Ch. 26 - Prob. 2QC Ch. 26 - Prob. 3QC Ch. 26 - Prob. 4QC Ch. 26 - Prob. 5QC Ch. 26 - Prob. 6QC Ch. 26 - Prob. 7QC Ch. 26 - The IRR is Learning Objective 4 the interest rate...Ch. 26 - Prob. 9QC Ch. 26 - Ian Corp, is considering two expansion projects....

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2. Decision for investment in the project:

To decide: Whether to invest in the given project