Hobart Corporation evaluates capital projects using a variety of performance screens; including a hurdle rate of 16%, payback period of 3 years or less, and an accounting rate of return of 20% or more. Management is completing review of a project on the basis of the following projections. Capital investment P200,000 Annual cash flows P 74,000 Straight-line depreciation 5 years Terminal value P20,000 The projected internal rate of return (IRR) is 20%. Which one of the following alternatives reflects the appropriate conclusions for the indicated evaluative measures? Group of answer choices IRR − Accept; Payback − Accept. IRR − Accept; Payback − Reject. IRR − Reject; Payback − Reject.
Hobart Corporation evaluates capital projects using a variety of performance screens; including a hurdle rate of 16%, payback period of 3 years or less, and an accounting rate of return of 20% or more. Management is completing review of a project on the basis of the following projections. Capital investment P200,000 Annual cash flows P 74,000 Straight-line depreciation 5 years Terminal value P20,000 The projected internal rate of return (IRR) is 20%. Which one of the following alternatives reflects the appropriate conclusions for the indicated evaluative measures? Group of answer choices IRR − Accept; Payback − Accept. IRR − Accept; Payback − Reject. IRR − Reject; Payback − Reject.
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter15: Capital Investment Analysis
Section: Chapter Questions
Problem 15.3.1P
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Hobart Corporation evaluates capital projects using a variety of performance screens; including a hurdle rate of 16%, payback period of 3 years or less, and an accounting
|
Capital investment |
P200,000 |
|
Annual cash flows |
P 74,000 |
|
Straight-line depreciation |
5 years |
|
Terminal value |
P20,000 |
The projected
Group of answer choices
IRR − Accept; Payback − Accept.
IRR − Accept; Payback − Reject.
IRR − Reject; Payback − Reject.
IRR − Reject; Payback − Accept.
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