Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Textbook Question
Chapter 12, Problem 8DQ
Two projects have an identical
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Students have asked these similar questions
Projects A and B are mutually exclusive. If project A, the larger project,
has an approximate ERR of 20 percent and project B has an approximate
ERR of 13 percent, which project is better if MARR=10 percent?
O A
The incremental ERR method is required to determine the better project.
Neither A nor B is valid.
B
*
For our purposes, a project is valid if its internal rate of return (IRR) is
less than MARR.
equal to or larger than MARR.
less than 0 percent.
larger than MARR.
Using the net present value method, the present value of cash inflows for Project A is P44,000 and the present value of cash inflows of Project B is P24,000. If Project A and Project B require initial investments of P40,000 and P20,000, respectively, and have the same useful life, what is the project that should be accepted assuming the projects are mutually exclusive projects?
Project A has an internal rate of return (IRR) of 15 percent. Project B has an IRR of 14 percent. Both projects have a required return of 12
percent. Which of the following statements is most correct? (Assume the projects are not mutually exclusive.)
OA. Both projects have a negative net present value (NPV).
OB. Both projects should be accepted because the IRR is greater than the required return.
OC. If the required return were less than 12 percent. Project 8 would have a higher IRR than Project A
OD. Both projects should be rejected.
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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- Company A has an NPV (Net Present Value) of $10,000 for a proposed project, while Company B has a NPV of $5,000 for a different project. Which project is more financially attractive? A. It cannot be determined from the information given B. Company A's project C. Company B's project D. Both projects are equally attractivearrow_forwardIf the net present value (NPV) of project A is + $200, and that of project B is + $80, then the net present value of the combined project is: +$80 0 +$280 +$200arrow_forwardProject A has an IRR of 25% and an NPV of $2 million. Project B has an IRR of 20% and an NPV of $3 million. Select all the following statements that are true. Group of answer choices If the projects are mutually exclusive, select project A only If the projects are mutually exclusive, select project B only If the projects are mutually exclusive, select both projects If the projects are independent, select project A only If the projects are independent, select project B only If the projects are independent, select both projectsarrow_forward
- Given the net present value (NPV) of Project A is -$500,000, Project B is $200,000 and Project C is $250,000. Which of the project(s) can be accepted?arrow_forwardAssume that there are two competing projects, A and B. Project A has an NPV of $1,000 and an IRR of 15%. Project B has an NPV of $800 and an IRR of 20%. Which of the following is true? Project A should be chosen because it has a higher NPV Project B should be chosen because it has a higher IRR It is not possible to us NPV or IRR to choose between the two projects Neither projects should be chosen All of thesearrow_forwardThe net present value of four projects is given below: Project W: $24,000 Project X: $ 11,000 Project Y: $20,000 Project Z: $14,000 The four projects given above require the same amount of investment. How would you rank them using net present value (NPV) method? Group of answer choices X, Z, Y, W W, X, Y, Z W, Y, Z, XX, Y, Z, Warrow_forward
- If the net present value of A is +$60 and of B is +$30, then what is the net present value of the combined project?arrow_forwardUsing the profitability index, which of the following mutually exclusive projects should be accepted? Project A: NPV = $14,387; NINV = $38,260Project B: NPV = $78,121; NINV = $99,710Project C: NPV = $9,541; NINV = $11,500arrow_forwardConsider three investment projects: A1, A2, and A3. Each project has the same service life, and the present worth of each component value (B, I, and C') is computed at 10% as follows: (a) If all three projects are independent, which projects would be selected, based on BC(i)?(b) If the three projects are mutually exclusive, which project would be the best alternative? Show the sequence of calculations that would be required in order to produce the correct results. Use the B/C ratio on incremental investment.arrow_forward
- Under what conditions might you find more thanone IRR for a project? How would you decidewhether or not to accept the project? If you werecomparing two mutually exclusive projects, onewith a single IRR of 12% and the other with two different IRRs of 10% and 15%, how should youchoose between the projects?arrow_forwardYou are considering the following two mutually exclusive projects. The crossover rate between these two projects is ___ percent and Project ___ should be accepted if the required return is greater than the crossover rate. Year : Project A : Project B 0 : −$ 29,000 : −$ 29,000 1 : 11,000 : 19,120 2 : 11,000 : 9,000 3 : 19,000 : 11,140arrow_forwardYou are considering the following two mutually exclusive projects. The crossover rate between these two projects is crossover rate. Year Project A Project B 0 1 23 $28,000 10,500 10,500 18,500 $28,000 18,610 8,500 10,630 percent and Project_ should be accepted if the required return is greater than thearrow_forward
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