Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
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Chapter 12, Problem 12.30AE
To determine
The IRR of the project M for company W.
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Lynch Pin in Learning is considering investing $411,000 in equipment to expand their operation. They anticipate this investment will save them $68,500 per year for each of the 8 years of its useful life.What will be the payback for this investment?
Amount Invested
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Expected annual net cash inflow
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Payback (Years)
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Solve the following problem by applying the method used in the video uploaded in
your Pewertaint presentation. You may check Lesson 04 Video 02 Payback pierrad
Problem. Assume the following cash flow for 2 projects. Assutming that the cash
flows are occurring at the end of the year. Find the payback period for both these
projects
Year
Project 1
Project 2
1000
600
1000
100
400
200
200
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You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below.
Use the Homework Student Workbook to calculate each project's net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI).
NPVx =
NPVy =
IRRx =
IRRy =
TVx =
TVy =
MIRRx =
MIRRy =
PVx =
PVy =
PIx =
PIy =
2. Which project or projects should be accepted if they are independent?
3.Which project or projects should be accepted if they are mutually exclusive?
Chapter 12 Solutions
Managerial Accounting (5th Edition)
Ch. 12 - Prob. 1QCCh. 12 - (Learning Objective 2) After identifying potential...Ch. 12 - Prob. 3QCCh. 12 - Prob. 4QCCh. 12 - Prob. 5QCCh. 12 - Prob. 6QCCh. 12 - Prob. 7QCCh. 12 - Prob. 8QCCh. 12 - Prob. 9QCCh. 12 - (Learning Objective 5) Which of the following...
Ch. 12 - Order the capital budgeting process (Learning...Ch. 12 - Prob. 12.2SECh. 12 - Prob. 12.3SECh. 12 - Prob. 12.4SECh. 12 - Prob. 12.5SECh. 12 - Prob. 12.6SECh. 12 - Prob. 12.7SECh. 12 - Prob. 12.8SECh. 12 - Prob. 12.9SECh. 12 - Prob. 12.10SECh. 12 - Prob. 12.11SECh. 12 - Prob. 12.12SECh. 12 - Prob. 12.13SECh. 12 - Prob. 12.14SECh. 12 - Prob. 12.15SECh. 12 - Identify ethical standards violated (Learning...Ch. 12 - Prob. 12.17AECh. 12 - Compute payback period and analyze changes...Ch. 12 - Prob. 12.19AECh. 12 - Prob. 12.20AECh. 12 - Prob. 12.21AECh. 12 - Prob. 12.22AECh. 12 - Calculate the payback and NPV for a sustainable...Ch. 12 - Prob. 12.24AECh. 12 - Prob. 12.25AECh. 12 - Prob. 12.26AECh. 12 - Prob. 12.27AECh. 12 - Prob. 12.28AECh. 12 - Prob. 12.29AECh. 12 - Prob. 12.30AECh. 12 - Prob. 12.31AECh. 12 - Prob. 12.32AECh. 12 - Prob. 12.33AECh. 12 - Prob. 12.34AECh. 12 - Prob. 12.35AECh. 12 - Prob. 12.36BECh. 12 - Prob. 12.37BECh. 12 - Prob. 12.38BECh. 12 - Prob. 12.39BECh. 12 - Prob. 12.40BECh. 12 - Prob. 12.41BECh. 12 - Prob. 12.42BECh. 12 - Prob. 12.43BECh. 12 - Prob. 12.44BECh. 12 - Prob. 12.45BECh. 12 - Prob. 12.46BECh. 12 - Prob. 12.47BECh. 12 - Prob. 12.48BECh. 12 - Prob. 12.49BECh. 12 - Prob. 12.50BECh. 12 - Prob. 12.51BECh. 12 - Prob. 12.52BECh. 12 - Prob. 12.53BECh. 12 - Prob. 12.54BECh. 12 - Prob. 12.55APCh. 12 - Prob. 12.56APCh. 12 - Prob. 12.57APCh. 12 - Prob. 12.58APCh. 12 - Prob. 12.59BPCh. 12 - Prob. 12.60BPCh. 12 - Evaluate an investment using all four methods...Ch. 12 - Prob. 12.62BPCh. 12 - Prob. 12.63SCCh. 12 - Discussion Questions 1. Describe the capital...Ch. 12 - Prob. 12.65ACTCh. 12 - Prob. 12.66ACTCh. 12 - Prob. 12.67ACT
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- You are contemplating to invest in your classmate’s business, use IRR to evaluate the project whether to accept or reject. Use the following info: Cost of Capital: 10%; Initial Investment: ₱20,000; Cash Flows over the past 5 years: Years 1 & 2: ₱5,000; Years 3 & 4: ₱1,000; Year 5: ₱1,250. Use Excel Method in finding the IRRarrow_forwardYou are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 13 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Project X (Videotapesof the Weather Report)($28,000 Investment) Project Y (Slow-MotionReplays of Commercials)($48,000 Investment) Year Cash Flow Year Cash Flow 1 $ 14,000 1 $ 24,000 2 12,000 2 17,000 3 13,000 3 18,000 4 12,600 4 20,000 a. Calculate the profitability index for project X. (Do not round intermediate calculations and round your answer to 2 decimal places.) b. Calculate the profitability index for project Y. (Do not round intermediate calculations and round your answer to 2 decimal places.) c. Which project would you select based on the profitability index? multiple choice Project X Project Yarrow_forwardYou are a project manager for your company and you are faced with five potential projects that you can invest in. Free cash flow projections and additional relevant data are given for each project in the table below. Assume that there are no cash flows after year 3. Assume that you can only take each project once and that you can only choose one project. Which project would you invest in? Select the best answer. Project Project A Project B Project C Project D Project E O I. Project A II. Project B III. Project C IV. Project D O V. Project E FCF Forecasts by Year (in $1,000) 0 2 1 500 (400) (400) (300) (250) (300) 75 60 75 135 115 175 3 650 210 190 200 Interest Rate (EAR) 8.0% 10.0% 10.0% 12.0% 12.0% IRR 25.00% 17.57% 15.92% 17.81% 19.96%arrow_forward
- You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 14 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Project X (Videotapesof the Weather Report)($20,000 Investment) Project Y (Slow-MotionReplays of Commercials)($40,000 Investment) Year Cash Flow Year Cash Flow 1 $ 10,000 1 $ 20,000 2 8,000 2 13,000 3 9,000 3 14,000 4 8,600 4 16,000 a. Calculate the profitability index for project X. b. Calculate the profitability index for project Y.arrow_forwardHelp please, 2. Perform a financial analysis for a project using the format provided in Figure 4-5 in your textbook (attached business_case_financials template). Assume that the project costs and benefits for this project are spread over four years as follows: Estimated costs are $200,000 in Year 1 and $30,000 each year in Years 2, 3, and 4. Estimated benefits are $0 in Year 1 and $100,000 each year in Years 2, 3, and 4. Use a 9 percent discount rate, and round the discount factors to two decimal places. Using the attached business case financials template, calculate and clearly display the NPV, ROI, and year in which payback occurs. In addition, write a paragraph explaining whether you would recommend investing in this project, based on your financial analysis.Business case financial spreadsheet for Task 2 and paragraphexplaining your recommendations for investing or not in the project.arrow_forwardAn IT company receives two new project proposals. Project A will cost $250,000 to develop and is expected to have an annual net cash flow of $50,000. Project B will cost $350,000 to develop and is expected to have an annual net cash flow of $60,000. Analyzing the two projects from a cashflow perspective using the payback period, which project is better? Why? Write the answers in the “Payback" tab of the attached EXCEL template. You may use the Payback Period template if you wish to. Note: Enter the discounted costs and benefits for your project below. Add and delete rows as needed. Year Costs Benefits Cumulative Costs Cumulative Benefits 1 2 3 4arrow_forward
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