XYZ Industries is considering two capital budgeting projects. Project A requires an initial investment of $48,000. It is expected to produce net annual cash flows of $7,000. Project B requires an initial investment of $75,000 and is expected to produce net annual cash flows of $12,000. Using the cash payback technique to evaluate the two projects, Siegel should accept:

XYZ Industries is considering two capital budgeting projects. Project A requires an initial investment of $48,000. It is expected to produce net annual cash flows of $7,000. Project B requires an initial investment of $75,000 and is expected to produce net annual cash flows of $12,000. Using the cash payback technique to evaluate the two projects, Siegel should accept:

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

See similar textbooks

Similar questions

Would you rather have $7,500 today or at the end of 20 years after it has been invested at 15%? Explain your answer. The following are independent situations. For each capital budgeting project, indicate whether management should accept or reject the project and list a brief reason why.
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
Management is considering two alternatives. Alternative A has projected revenue per year of $100,000 and costs of $70,000 while Alternative B has revenue of $100,000 and costs of $60,000. Both projects require an initial investment of $250,000 of which $75,000 has already been set aside and will be used as a down payment on the project that is chosen. There are also other qualitative factors that management must consider before making a final choice.Required: Which of the following statements is correct about relevant costs and relevant revenues. a. The sunk cost of $75,000 is relevant b. The projected revenues are relevant to the decision c. The only relevant item are the costs as they differ between alternative d. The initial investment of $250,000, the projected revenues, and the projected costs are all relevant
Siegel Industries is considering two capital budgeting projects. Project A requires an initial investment of $48,000. It is expected to produce net annual cash flows of $8,000. Project B requires an initial investment of $75,000 and is expected to produce net annual cash flows of $12,000. Using the cash payback technique to evaluate the two projects, Siegel should accept: A. Project A because it has a shorter cash payback period. B. Project B because it produces a larger net annual cash flow. C. Project B because it has a shorter cash payback period. D. Project A because it requires a smaller initial investment.
XYZ Industries is considering two capital budgeting projects. Project A requires an initial investment of $48,000. It is expected to produce net annual cash flows of$7,000. Project B requires an initial investment of $75,000 and is expected to produce net annual cash flows of $12,000. Using the cash payback technique to evaluate the two projects, Siegel should accept: (01)(a) Project A because it has a shorter cash payback period.(b) Project B because it has a shorter cash payback period.(c) Project A because it requires a smaller initial investment.(d) Project B because it produces a larger net annual cash flow.3.
Bidump Corporation is evaluating two mutually exclusive capital budgeting projects. Project W2, which costs $210,000, is expected to generate $51,400 for six years and Project 5, which costs $104,000, it expected to $45,200 for six years. Bidump's required rate of return is 11 percent. What is the internal rate of return (IRR) of the project the company should purchase) Do not round intermediate calculations. Round your answer to two de places. -Select- should be purchased. Its IRR is N
Your firm's CFO presents you with two capital budgeting proposals: one that involves buying a new delivery truck with an NPV of $15,000 and an IRR of 10% and one that involves building additional warehouse space with an NPV of $12,000 and an IRR of 13%. The projects are independent projects. Which of the following is true? a) You should accept both projects since they have NPV > 0 b) You should accept the warehouse project since it has the greater IRR c) You should accept the truck project since it has the highest NPV d) It is not possible to know which project is best without knowing the return required by the firm
Union Atlantic Corporation, which has a required rate of return equal to 14 percent, is evaluating a capital budgeting project that requires an initial investment of $170,000. The project will generate a $60,750 cash inflow at the year-end of each of the next four years. According to this information, which of the following statements is correct? Group of answer choices The project's is acceptable if its discounted payback period is less than the traditional payback period. The project is acceptable because its net present value is negative. The project is acceptable if its internal rate of return (IRR) is more than 14 percent. The project is acceptable if its discounted payback period is greater than its economic life.
Goergen Corporation is considering a capital budgeting project that would require an initial investment of $700,000. The investment would generate annual cash inflows of $267,000 for the life of the project, which is 4 years. The company's discount rate is 10%. The net present value of the project is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice $368,000 $700,000 $846,123 $146,123
Purple Whale Foodstuffs Inc. is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Purple Whale Foodstuffs Inc. has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Purple Whale Foodstuffs Inc.'s WACC is 8%, and project Sigma has the same risk as the firm's average project. The project is expected to generate the following net cash flows: \table[[Year,Cash Flow],[Year 1,$275,000
Purple Whale Foodstuffs Inc. is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Purple Whale Foodstuffs Inc. has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Purple Whale Foodstuffs Inc.’s WACC is 8%, and project Sigma has the same risk as the firm’s average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $275,000 Year 2 $400,000 Year 3 $450,000 Year 4 $425,000 Which of the following is the correct calculation of project Sigma’s IRR? 25.51% 21.48% 22.82% 26.85% If this is an independent project, the IRR method states that the firm should . If the project’s…
Kansas furniture Corporation (KFC) is evaluating a capital budgeting project that costs $34,000 and is expected to generate after-tax cash flows equal to $14,150 per year for three years. KFC's required rate of return is 12 percent. Compute the projects (a) net present value (NPV) and (b) internal rate of return (IRR). (c) Should the project be purchased?