Accounting
27th Edition
ISBN: 9781337272094
Author: WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher: Cengage Learning,
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Chapter 26, Problem 26.2BPR
1. a.
To determine
Cash payback method:
Cash 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 long-term investment (fixed assets) of the business.
Net present value method is the method which is used to compare the initial
To determine: The cash payback period for the equipment.
b.
To determine
To calculate: The net present value of the investment of SCP Incorporation.
2.
To determine
To prepare: A brief report for advising management on the relative merits of each project.
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Cash payback period, net present value method, and analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:
Each project requires an investment of $900,000. A rate of 15% has been selected for the net present value analysis.
Instructions
1. Compute the following for each product:
a. Cash payback period.
b. The net present value. Use the present value of $1 table appearing in this chapter (Exhibit 2).
2. Prepare a brief report advising management on the relative merits of each project.
Cash Payback Period, Net Present Value Method, and Analysis for a Service CompanySocial Circle Publications Inc. is considering two new magazine products. The estimated net cash flowsfrom each product are as follows:Year Sound Cellar Pro Gamer1 $ 65,000 $ 70,0002 60,000 55,0003 25,000 35,0004 25,000 30,0005 45,000 30,000Total $220,000 $220,000Each product requires an investment of $125,000. A rate of 10% has been selected for the net presentvalue analysis.Present Value of $1 at Compound InterestYear 6% 10% 12% 15% 20%1 0.943 0.909 0.893 0.870 0.8332 0.890 0.826 0.797 0.756 0.6943 0.840 0.751 0.712 0.658 0.5794 0.792 0.683 0.636 0.572 0.4825 0.747 0.621 0.567 0.497 0.4026 0.705 0.564 0.507 0.432 0.3357 0.665 0.513 0.452 0.376 0.2798 0.627 0.467 0.404 0.327 0.2339 0.592 0.424 0.361 0.284 0.19410 0.558 0.386 0.322 0.247 0.162Required:3. PR.11-05B1a. Compute the cash payback period for each product.Cash Payback PeriodSound CellarPro Gamer1b. Compute the net present value. Use the present…
Alba Company has an investment opportunity to invest their money around BD 50,000 with two choice
of project, namely Project (A) and Project (B). Additionally, the discount rate for both project around
6%. The cash inflow for both projects as following:
Year
Project A
Project B
1
8,000
20,000
13,000
20,000
3
18,000
20,000
4
20,000
20,000
Required:
Calculate the net cash flow by using payback period method
Calculate the net cash flow by using net present value method
Calculate the net cash flow by using profitability index method
Interpret each results of method in terms of the project expected profitability for Alba Company
a.
b.
с.
d.
A BI
Chapter 26 Solutions
Accounting
Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Prob. 3DQCh. 26 - Your boss has suggested that a one-year payback...Ch. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - A net present value analysis used to evaluate a...Ch. 26 - Two projects haw an identical net present value of...Ch. 26 - Prob. 9DQCh. 26 - What are the major disadvantages of the use of the...
Ch. 26 - Prob. 11DQCh. 26 - Give an example of a qualitative factor that...Ch. 26 - Prob. 13DQCh. 26 - Average rate of return Determine the average rate...Ch. 26 - Average rate of return Determine the average rate...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Prob. 26.3APECh. 26 - Net present value A project has estimated annual...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Prob. 26.5APECh. 26 - Prob. 26.5BPECh. 26 - Prob. 26.1EXCh. 26 - Average rate of returncost savings Midwest...Ch. 26 - Average rate of returnnew product Micro Tek Inc....Ch. 26 - Calculate cash flows Natures Way Inc. is planning...Ch. 26 - Cash payback period for a service company Prime...Ch. 26 - Cash payback method Lily Products Company is...Ch. 26 - Prob. 26.7EXCh. 26 - Prob. 26.8EXCh. 26 - Net present value methodannuity for a service...Ch. 26 - Prob. 26.10EXCh. 26 - Prob. 26.11EXCh. 26 - Prob. 26.12EXCh. 26 - Net present value method and present value index...Ch. 26 - Prob. 26.14EXCh. 26 - Cash payback period, net present value analysis,...Ch. 26 - Internal rate of return method The internal rate...Ch. 26 - Internal rate of return method for a service...Ch. 26 - Internal rate of return methodtwo projects Munch N...Ch. 26 - Prob. 26.19EXCh. 26 - Prob. 26.20EXCh. 26 - Prob. 26.21EXCh. 26 - Prob. 26.22EXCh. 26 - Sustainable energy capital investment analysis...Ch. 26 - Sustainable product capital investment analysis...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Cash payback period, net present value method, and...Ch. 26 - Net present value method, present value index, and...Ch. 26 - Prob. 26.4APRCh. 26 - Alternative capital investments The investment...Ch. 26 - Capital rationing decision for a service company...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Prob. 26.2BPRCh. 26 - Prob. 26.3BPRCh. 26 - Net present value method, internal rate of return...Ch. 26 - Prob. 26.5BPRCh. 26 - Capital rationing decision for a service company...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Communication Global Electronics Inc. invested...Ch. 26 - Prob. 26.4CPCh. 26 - Qualitative issues in investment analysis The...Ch. 26 - Prob. 26.6CP
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