Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 12, Problem 1CMA
To determine
Identify the
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Consider the following project cash flow.
YEAR
CASH FLOW
0
-1000
1
500
2
500
3
500
4
500
5
500
Use this information to calculate the Internal Rate of Return by linear interpolation(the trial and error method).
WITH WORKING PLEASE
How do you calculate net investment in working capital, net cash flows, present value of net cash flows, and NPV?
WACC is 10.10%
The accounting rate of return (also known as the unadjusted rate of return) can be calculated as: (See your Chapter 25 notes, page 2)
Initial cost of the investment divided by the annual net cash inflow
Initial cost of the investment minus the annual net cash inflow
Average amount of the investment divided by the average annual net income
Average annual net income divided by the average amount of the investment
Present value of net cash inflow divided by the initial cost of the investment
Annual net cash inflow minus the initial cost of the investment
Future value of net cash inflow divided by the initial cost of the investment
Present value of the net cash inflow minus the initial cost of the investment
Chapter 12 Solutions
Managerial Accounting
Ch. 12 - What are the principal objections to the use of...Ch. 12 - Discuss the principal limitations of the cash...Ch. 12 - Prob. 3DQCh. 12 - Your boss has suggested that a one-year payback...Ch. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - A net present value analysis used to evaluate a...Ch. 12 - Two projects have an identical net present value...Ch. 12 - Prob. 9DQCh. 12 - What are the major disadvantages of the use of the...
Ch. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Average rate of return Determine the average rate...Ch. 12 - Prob. 2BECh. 12 - Prob. 3BECh. 12 - Internal rate of return A project is estimated to...Ch. 12 - Prob. 5BECh. 12 - Average rate of return The following data are...Ch. 12 - Average rate of returncost savings Maui...Ch. 12 - Average rate of returnnew product Hana Inc. is...Ch. 12 - Determine cash flows Natural Foods Inc. is...Ch. 12 - Cash payback period for a service company Janes...Ch. 12 - Cash payback method Lily Products Company is...Ch. 12 - Prob. 7ECh. 12 - Net present value method for a service company...Ch. 12 - Net present value methodannuity for a service...Ch. 12 - Net present value methodannuity Jones Excavation...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Net present value-unequal lives Bunker Hill Mining...Ch. 12 - Prob. 22ECh. 12 - Average rate of return method, net present value...Ch. 12 - Prob. 2PACh. 12 - Net present value method, present value index, and...Ch. 12 - Net present value method, internal rate of return...Ch. 12 - Prob. 5PACh. 12 - Prob. 6PACh. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Net present value method, present value index, and...Ch. 12 - Prob. 4PBCh. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - San Lucas Corporation is considering investment in...Ch. 12 - Prob. 2MADCh. 12 - Prob. 3MADCh. 12 - Prob. 4MADCh. 12 - Prob. 5MADCh. 12 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 12 - Ethics in Action Danielle Hastings was recently...Ch. 12 - Prob. 4TIFCh. 12 - CEO, Worthington Industries (WOR) (a...Ch. 12 - Prob. 6TIFCh. 12 - Prob. 1CMACh. 12 - Staten Corporation is considering two mutually...Ch. 12 - Prob. 3CMACh. 12 - Foster Manufacturing is analyzing a capital...
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- Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion (b) Assume that projects C and È are mutually exclusive. Using the IRR criterion, which Project would you select? Net Cash Flow A В C D E -4,250 3,200 2,850 -4,250 1,500 3,250 1,600 1,200 -4,250 2,850 -4,850 2,100 2,100 2,100 2,100 2,500 1 -835 2,900 1,050 500 2 -835 3 800 -835 4 300 -835arrow_forwardCalculate the HPR of the following investment, entered as a percentage (Example: if your answer is 14.5%, enter 14.5 and not 0.145) Period Cashflow 0 -14100 1 3300 2 3300 3 3100 4 2800arrow_forwardWhich of the following comes closest to the net present value (NPV) of a project whose initial investment is $5 and which produces two cash flows: the first at the end of year 2 of $3 and the second at the end of year 4 of $7? The required rate of return is 13%? Select one: a. $1.84 b. $0 c. $1.64 d. $2.05 e. $2.26arrow_forward
- Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion? (b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which Project would you select?. Net Cash Flow B D. E -4,850 2,100 2,100 2,500 4,250 3,200 2,850 800 300 4,250 4,250 2,850 2,900 1,050 500 -835 -835 -835 -835 1,500 3.250 1,600 1,200 2,100 2,100arrow_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_forwardConsider the cash flows for the following investment projects: (a) For Project A. find the value of X that makes the equivalent annual receiptsequal the equivalent annual disbursement at i = 13%.(b) Would you accept Project Bat i = 15% based on the AE criterion?arrow_forward
- For the investment shown in the following table, calculate the rate of return earned over the unspecified time period. Cash flow during period Beginning-of- period value End-of- period value $370 $42,400 $36,500 The rate of return on the investment is enter your response here%arrow_forwardAverage Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 Operating Income 8 9 10 $54,000 54,000 54,000 54,000 54,000 $270,000 0.943 Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% Net Cash Flow 0.909 0.826 0.751 $172,000 172,000 172,000 172,000 172,000 $860,000 12% 0.893 0.797 0.756 0.712 0.658 0.683 0.636 0.572 0.621 0.567 0.497 0.564 0.507 0.513 0.467 0.424 0.386 0.452 0.404 15% 0.361 0.322 0.870 0.432 0.376 0.327 0.284 0.247 Operating Income…arrow_forwardFinancial assets management decision-making often involves determination of the Present Value (PV) of the flow of money over time. If a monetary PV is given by: PV = Gt/(1+m)t (i) Identify and explain each of the variables: G, m, and t. (ii) Explain how an increase in m would impact the PV of this financial asset. (iii) Find how much would be required to generate a PV of 890, over a 5 years period, at a constant annual interest rate of 4 percent.arrow_forward
- For a project that has an initial cash outflow followed by cash inflows, the profitability index (PI) is equal to the present value of cash inflows divided by the cost of capital. True kalsearrow_forward7.16)Consider the investment projects given in Table P7.16. Assume that MARR = 12% in the following questions. (a) Compute i* for each investment. If the problem has more than one i*, identify all of them. (b) Compute IRR(true) for each project. (c) Compute the MIRR at MARR = 12%. (d) Determine the acceptability of each investment. TABLE P7.16 Net Cash Flow Project 1 Project 2 Project 3 -$1,000 -$1,000 -$1,000 1 2,500 1,960 1,400 2 -840 950 -200arrow_forwardFor the investment shown in the following table, calculate the total return earned over the unspecified time period. Cash flow during period Beginning-of- period value End-of- period value −$10 $3,200 $2,800 The total return on the investment is __%.arrow_forward
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