Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment Annual cash inflows Salvage value of equipment Life of the investment Required rate of return Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The net present value of the investment is: O $15,636 O $24,000 $ 30,000 $ 6,000 $0 O $45,636 15 years 10% O $60,000

Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment Annual cash inflows Salvage value of equipment Life of the investment Required rate of return Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The net present value of the investment is: O $15,636 O $24,000 $ 30,000 $ 6,000 $0 O $45,636 15 years 10% O $60,000

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3MAD

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A characteristic of the payback method is that it: (See your Chapter 25 notes, page 9) Uses accrual accounting inflows in the numerator of the calculation Uses the estimated expected useful life of the asset in the denominator of the calculation Incorporates cash flows received after the payback period has been reached Is based on accounting income Incorporates the time value of money Ignores total project profitability
Garrison Company has two Investment opportunitles. A cash flow schedule for the Investments Is provided below: Year Investment A Investment B $(4,900) 1,960 1,960 1,960 $(5,850) 2,940 2 1,960 1,960 4 1,960 980 Considering the unequal Investments, which of the following techniques would be most approprlate for choosIng between Investment A and Investment B? Multiple Choice Payback method Present value index Net present value method None of these answers is correct
Assume San Lucas Corporation in MAD 26-1 assigns the following probabilities to the estimated annual net cash flows: a. Compute the expected value of the annual net cash flows. b. Determine the expected net present value of the equipment, assuming a desired rate of return of 10% and the expected annual net cash flows computed in part (a). Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Based on your results in parts (a) and (b), should San Lucas Corporation invest in the equipment?
Calculate the Accrual accounting rate of return based on net initial investment (Assume straight-line depreciation.Use the average annual savings in cash operating costs when computing the numerator of the accrualaccounting rate of return.) for the special-purpose bottling machine.
What name is given to the time value of money technique that discounts the after-tax cash flows for a project over its life to time period zero using the company’s minimum desired rate of return? a. net present value method b. capital rationing methodc. payback method d. average rate of return method e. accounting rate of return method
In the payback method, depreciation is added back to net operating income when computing the annual net cash flow. True or False The internal rate of return is computed by finding the discount rate that equates the present value of a project's cash outflows with the present value of its cash inflows. True or False The internal rate of return method assumes that the cash flows generated by the project are immediately reinvested elsewhere at a rate of return that equals the company's cost of capital. True or False An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project. True False The minimum required rate of return is the discount rate that makes the net present value of the project equal to zero. True False The production budget is typically prepared before the direct materials budget. True False The selling and administrative budget is typically prepared…
The before-tax and loan cash flows for an economic evaluation are expressed in constant dollars. What must be done to loan and depreciation cash flows in order to correctly conduct an after-tax present worth analysis with borrowed capital? I. Convert the loan principal payments to constant dollar II. Convert the loan interest payments to constant dollar III. Convert the MACRS depreciation allowances to constant dollar a. I and II only b. II and III only c. I, II, and III d. No conversions are required.
choose the coreect answer 1-Aconservative financing policy indicates that investment in fixed and current assets is funded by long-term sources of financing and this policy leads to a-Low risk of real and financial hardship – b-Low interest rates and apayment premium borne by the company 2- The payback period method in evaluating projects depends on extracting the time period required to cover the investment amount under this method a-we tuke only cashflows to cover the investment size b-we talk cash flows to cover with cash flows expected to be collected after the payback period 3- suppose you have a stock and this stock achieves a loss in half of the period of 20% and makes a profit in the other half of the period of 70% and therefore the expected rate of return per share will ER =25% ER=50% ER=65%
In the discounted cash flow (DCF) method, which of the following is the correct formula for calculating Unlevered Free Cash Flows (UFCF)? A)EBIT (1-tax rate) + Depreciation and Amortization (D&A) + Investment in Net Working Capital (\Delta NWC) + Capital Expenditure (CapEx) B)EBIT (1-tax rate) – D&A – \Delta NWC – CapEx C)EBIT (1-tax rate) + D&A – \Delta NWC + CapEx D)EBIT (1-tax rate) + D&A – \Delta NWC – CapEx E)EBIT (1-tax rate) – D&A + \Delta NWC + CapEx
Garage, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$43,500 -$43,500 1 21,400 6,400 2 18,500 14,700 3 13,800 22,800 4 7,600 25,200 What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 11 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule? Over what range of discount rates would the company choose project? A? Project B? At what discount rate would the company be indifferent between these two projects? Explain.
Which of the following should NOT be included in the cash flows for project analysis? Opportunity costs () Side effects or erosion () Sunk costs ()Operating cash flows for all years () The initial investment in net working capital Page 19 Previous Page Next Page
Please answer the following question. In this method, the company compares the amount spent on the investment with the discounted expected future cash inflows. a.Payback b.NRV c.Investment d.IRR