Connect 1-Semester Access Card for Managerial Accounting: Creating Value in a Dynamic Business Environment (NEW!!)
11th Edition
ISBN: 9781259727788
Author: Hilton & Platt
Publisher: MCG
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Question
Chapter 16, Problem 55P
1.
To determine
Calculate the payback period for the given proposal.
1.
Expert Solution
Explanation of Solution
Payback period: Payback period is the expected time period which is required to recover the cost of investment. It is one of the capital investment method used by the management to evaluate the proposal of long-term investment (fixed assets) of the business. But payback method has high risk than other method, because it does not follow the time value of money concept in valuing the cash inflows.
Calculate the payback period for the given proposal as follows:
Initial investment after tax = $120,000.
| Year | Incremental | Accumulated cash flow |
| 1 | $ 40,000 | $40,000 |
| 2 | $40,000 |
$80,000 |
| 3 | $40,000 |
$120,000 |
| 4 | $38,000 |
$158,000 |
| 5 | $37,000 |
$195,000 |
Table (1)
Conclusion
Therefore, the payback period for the given proposal is 3 years.
2.
To determine
Calculate the accounting
2.
Expert Solution
Explanation of Solution
Accounting rate of return method: Accounting rate of return is the amount of income which is earned over the life of the investment. It is used to measure the average income as a percent of the average investment of the business, and it is also known as the average rate of return.
Calculate the accounting rate of return for the given proposal using initial investment as follows:
Working note (1):
Calculate the average incremental revenue.
Working note (2):
Calculate the average incremental expense.
Working note (3):
Calculate the average
3.
To determine
Calculate the accounting rate of return for the given proposal using average investment.
3.
Expert Solution
Explanation of Solution
Calculate the accounting rate of return for the given proposal using average investment as follows:
Working note (4):
Calculate the average investment.
4.
To determine
Explain the reason why the discounted cash flow methods are superior to the payback and accounting rate of return.
4.
Expert Solution
Explanation of Solution
Explain the reason why the discounted cash flow methods are superior to the payback and accounting rate of return as follows:
Discounted cash flow method reflects time value of money, and payback and accounting rate of return does not use the present value concept in valuing cash flows occurring in the different time period. Hence, the
5.
To determine
Explain whether the activity of board’s chairperson is ethical or not.
5.
Expert Solution
Explanation of Solution
No, the activity of board’s chairperson is not ethical because chairperson should provide fair and objective information about the project and management should evaluate and choose the best alternative based on the high return.
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Chapter 16 Solutions
Connect 1-Semester Access Card for Managerial Accounting: Creating Value in a Dynamic Business Environment (NEW!!)
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Explain the following terms: recovery of...Ch. 16 - List and briefly explain two advantages that the...Ch. 16 - List and briefly explain four assumptions...Ch. 16 - Prob. 9RQCh. 16 - Prob. 10RQ
Ch. 16 - Give an example of a noncash expense. What impact...Ch. 16 - Prob. 12RQCh. 16 - What is a depreciation tax shield? Explain the...Ch. 16 - Prob. 14RQCh. 16 - Why is accelerated depreciation advantageous to a...Ch. 16 - Prob. 16RQCh. 16 - Why may the net-present-value and...Ch. 16 - Prob. 18RQCh. 16 - What is meant by the term payback period? How is...Ch. 16 - Prob. 20RQCh. 16 - How is an investment projects accounting rate of...Ch. 16 - Prob. 22RQCh. 16 - Prob. 23RQCh. 16 - Prob. 24ECh. 16 - Refer to the data given in the preceding exercise....Ch. 16 - Prob. 26ECh. 16 - Prob. 28ECh. 16 - Prob. 29ECh. 16 - Prob. 30ECh. 16 - Prob. 31ECh. 16 - Prob. 32ECh. 16 - Sharpe Machining Company purchased industrial...Ch. 16 - The owner of Atlantic City Confectionary is...Ch. 16 - The management of Niagra National Bank is...Ch. 16 - Allegience Insurance Companys management is...Ch. 16 - Prob. 37ECh. 16 - Prob. 38ECh. 16 - The states Secretary of Education is considering...Ch. 16 - The supervisor of the county Department of...Ch. 16 - Prob. 41PCh. 16 - Prob. 42PCh. 16 - Prob. 43PCh. 16 - Special People Industries (SPI) is a nonprofit...Ch. 16 - Washington Countys Board of Representatives is...Ch. 16 - Prob. 46PCh. 16 - Prob. 47PCh. 16 - Mind Challenge, Inc. publishes innovative science...Ch. 16 - Philadelphia Fastener Corporation manufactures...Ch. 16 - Prob. 50PCh. 16 - Prob. 51PCh. 16 - Prob. 52PCh. 16 - Prob. 53PCh. 16 - Prob. 54PCh. 16 - Prob. 55PCh. 16 - Prob. 56PCh. 16 - Pensacola Cablevision Company provides television...Ch. 16 - Pensacola Cablevision Company provides television...Ch. 16 - The board of education for the Central Catskill...Ch. 16 - Prob. 60C
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