Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Chapter 12, Problem 19P
You are asked to evaluate the following two projects for the Norton Corporation. Using the
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Students have asked these similar questions
A. Calculate the profitability index for project X.
B. Calculate the profitability for project Y
C. Using the NPV method combined with the PI aporoach, which project would you select? Use a discount rate of 13 percent
You are asked to evaluate the following two projects for the Norton Corporation. Using the net present value method
combined with the profitability index approach described in footnote 2 of this chapter, which project would you select? Use a
discount rate of 14 percent.
Project X (videotapes of the weather report) ($20,000 investment)
Year
Cash Flow
1.
$10,000
2
8,000
3
9.000
4
8.600
Project X (videotapes of the weather report) ($40,000 investment)
Year
Cash Flow
$20,000
2
13,000
3
14.000
4
16.800
The table below shows the profit after tax and the book value of investment for three projects A, B, and C
Required:Calculate the Accounting Rate of Return (ARR) of the three projects and recommend the best option based on your calculation.
Chapter 12 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 12 - Prob. 1DQCh. 12 - Why does capital budgeting rely on analysis of...Ch. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - What does the term mutually exclusive investments...Ch. 12 - Prob. 6DQCh. 12 - If a corporation has projects that will earn more...Ch. 12 - What is the net present value profile? What three...Ch. 12 - How does an asset’s ADR (asset depreciation...Ch. 12 - Assume a corporation has earnings before...
Ch. 12 - Assume a corporation has earnings before...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Al Quick, the president of a New York Stock...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Assume a 90,000 investment and the following cash...Ch. 12 - Prob. 9PCh. 12 - X-treme Vitamin Company is considering two...Ch. 12 - You buy a new piece of equipment for 16,230, and...Ch. 12 - Prob. 12PCh. 12 - Home Security Systems is analyzing the purchase of...Ch. 12 - Aerospace Dynamics will invest 110,000 in a...Ch. 12 - The Horizon Company will invest 60,000 in a...Ch. 12 - Skyline Corp. will invest 130,000 in a project...Ch. 12 - The Hudson Corporation makes an investment of ...Ch. 12 - The Pan American Bottling Co. is considering the...Ch. 12 - You are asked to evaluate the following two...Ch. 12 - Turner Video will invest 76,344 in a project. The...Ch. 12 - The Suboptimal Glass Company uses a process of...Ch. 12 - Keller Construction is considering two new...Ch. 12 - Davis Chili Company is considering an investment...Ch. 12 - Telstar Communications is going to purchase an...Ch. 12 - Assume 65,000 is going to be invested in each of...Ch. 12 - The Summit Petroleum Corporation will purchase an...Ch. 12 - Oregon Forest Products will acquire new equipment...Ch. 12 - Universal Electronics is considering the purchase...Ch. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Hercules Exercise Equipment Co. purchased a...Ch. 12 - Prob. 2WECh. 12 - Returning to TXN’s summary page, record the...
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- Following is information on two alternative investments being considered by Jolee Company. The company requires a 10% return from its investments. For each alternative project, compute the (a) net present value and (b) profitability index. (Round your answers in part b to two decimal places.) If the company can only select one project, which should it choose?arrow_forwardUse the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the present value tables provided in APPENDICES1. Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand).Use your answers to recommend the project that should be chosen. Motivateyour choice.arrow_forwardProfitability index. Given the discount rate and the future cash flow of each project listed in the following table, , use the PI to determine which projects the company should accept. ..... What is the Pl of project A? (Round to two decimal places.)arrow_forward
- Use the information provided to answer the questions Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places).Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). Use your answers from previous question to recommend the project that should be chosen. Motivateyour choice.arrow_forwardYou have been assigned to perform a project selection based on profitability index. You have collected data on the three project alternatives A1, A2, and A3 and your team has calculated the following (table) present worth equivalent for the benefits, costs, and investments at a social discount rate of 10%. The service life of each alternative is identical. (a) Find the PI(i) for each project alternative (b) Find the best alternative based on incremental PI(i) analysis (c) Why is the profitability index referred to as a measure of capital efficiency?arrow_forwardUse the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5. 5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). 5.1.4 Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivateyour choice. INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000 Additional informationThe discount rate used by the company is 12%.arrow_forward
- Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $400,000 and has a present value of cash flows of $1,100,000. Project 2 requires an initial investment of $4,000,000 and has a present value of cash flows of $6,000,000. 1. Compute the profitability index for each project. 2. Based on the profitability index, which project should the company prefer? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the profitability index for each project. Project 1 Project 2 Choose Numerator: Profitability Index T 7 Choose Denominator: 4 of 5 180 # Next > G Oarrow_forwardUse these data to compute for each (a) the NPV at discount rates of 10 and 5 percent, (b) the BCR at the same rates, and (c) the internal rate of return for each. Describe the facts about the projects that would dictate which criterion is appropriate, and indicate which project is preferable under each circumstance.arrow_forwardUse the graph below to answer the following two statements. (2) Project _________ has the higher IRR. At a discount rate of rate 10%, project _________ should be chosen.arrow_forward
- Please solve both (a) and (b) in an Excel Spreadsheet and provide formulas you used. a) Use rate of return (ROR) analysis to determine which of the mutually exclusive projects listed below to select given a MARR of 12% per year. b) Confirm your answer to part (a) using Present Worth analysis.arrow_forwardOxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Life of Net the Internal Project (years) of Return Investment Present Rate Project Required $970,000 $730,000 $670,000 $830,000 Value $176,514 $175,933 $185,782 $129,082 A 6. 16% В 11 15% C 19% 17% The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth.arrow_forwardEvaluate the projects using each of the following criteria, stating which project(s) Carrium Insights Inc. should choose under each criteria and why: i.Discounted Payback ii.Net Present Valuearrow_forward
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