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 4DQ
Your boss has suggested that a one-year payback period is the same as a 100% average
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Thank you for calculating the IRR. Could you also answer the question "If the required return is 11 percent, should the firm accept the following project?". An explanation would also be extremely helpful. Thank you!
What is the payback period on each of the above projects?
Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? Why?
If you use a cutoff period of three years, which projects would you accept? Why?
If the opportunity cost of capital is 10%, which projects have positive NPVs? How do you know?
“If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” Is this statement true or false? How do you know?
If the firm uses the discounted-payback rule, will it accept any negative NPV projects? Will it turn down any positive NPV projects? How do you know?
Your CEO insists that all projects should have a payback period of four or less. As a result attractive long lived projects are being turned down. The CEO is willing to switch to a discounted payback with same four year cutoff period. Would this be an improvement and which method you would suggest or emphasize more?
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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- You are considering a project that requires a $1000 investment today and returns $550 at the end of the first year and $726 at the end of the second year. If your discount rate is 10%, then the Net Present Value (NPV) of the investment is $ type your answer... In this case, the Internal Rate of Return is choose your answer... than 10%.arrow_forwardSuppose a project with a 6% discount rate yields R5000 for the next three years. Annual operating costs amount to R1000 for each year, and the one time initial investment cost is R8000. a. Calculate the Net Present Value (NPV) of this project.b. Calculate the cost-benefit ratio for the project. c. Is the project acceptable? Motivate your answer.arrow_forwardPlease draw the graph and solve neatly. I will rate once given me the right answer. Question: A project pays $2000 today, costs $5000 a year from now, and pays $12, 500 in two years. What is the rate of return? Assume that the MARR is 25%arrow_forward
- Answer completely.arrow_forwardSuppose you are considering a project has an initial cost of $500 that has an ongoing benefit of $250. Further, there is an ongoing cost that is equal to $90, which increases by 10% each year (compounding). Assume the project lasts 6 years. If the appropriate discount rate is 6%. Calculate: a) the Net Present Value = $Blank 1 b) the Benefit Cost Ratio = Blank 2 c) should the project be accepted or rejected? Explain your answer using the information from part a) and b). Answer =Blank 3 (accept/reject) Provide your answers to two decimal places. Do not include any commas (,) "$" or "%" in your answers. Ensure you show all your working in your spreadsheet.arrow_forwardYou are offered an investment opportunity in which you will receive $25,000 in one year in exchange for paying $23,750 today. Suppose the risk-free interest rate is 6% per year. Should you take this project? The NPV for this project is closest to: A) Yes; NPV = $165 B) No; NPV = $165 C) Yes; NPV = -$165 D) No; NPV = -$165arrow_forward
- Your firm has a risk-free investment opportunity with an initial investment of $162,000 today and receive $175,000 in one year. For what level of interest rates is this project attractive? The project will be attractive when the interest rate is any positive value less than or equal to _______% ?arrow_forwardSuppose you are considering a project has an initial cost of $600 that has an ongoing benefit of $ 250. Further, there is an ongoing cost that is equal to $90, which increases by 10% each year ( compounding). Assume the project lasts 6 years. If the appropriate discount rate is 6%. Calculate: a) the Net Present Value = $ Blank 1 b) the Benefit Cost Ratio Blank 2 c) should the project be accepted or rejected? Explain your answer using the information from part a) and b). Answer = Blank 3 (accept/reject) provide your answers to two decimal places. Do not include any commas (,) "$" or "%" in your answers. Ensure you show all your working in your spreadsheet. (best show with excel)arrow_forwardYour firm has a risk-free investment opportunity where it can invest $160,000 today and receive $170,000 in one year. For what level of interest rate is this project attractive? The project will be attractive when the interest rate is any positive value less than or equal to ____________%? (Round to two decimal places.)arrow_forward
- In a few sentences, answer the following question as completely as you can. The notion that money has time value is based on the existence of a non–zero opportunity rate (i.e., a rate of return at which it is possible to invest). Why is the opportunity rate so important? Construct an example that shows, with an opportunity rate of 0%, that the value of $1 received today will be $1 in the future.arrow_forwardPlease answer both of the question. Exercise No. 1 Suppose they offer us an investment project in which we have to invest $5,000.00 and they promise us that after that investment we will receive $2,000.00 the first year and $4,000.00 the second year. Calculate internal rate of returnExercise No. 2 Suppose they offer us an investment project in which we have to invest $5,000.00 and they promise us that after that investment we will receive $1,000.00 the first year, $2,000.00 the second year, $1,500.00 the third year and $3,000.00 the fourth year. Calculate internal rate of returnarrow_forwardPlease Give Step by Step Answer Otherwise I give DISLIKES !!arrow_forward
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