A manufacturing company is considering two types of industrial projects that require the same level of initial investment but provide different levels of operating cash flows over the project life. The in house engineer has compiled the following financial data related to both projects, including the rate of return figures. Net Cash Flow Incremental (A - B) n Project A Project B 0 -$18,000 -$18,000 0 1 960 11,600 -10,640 2 7,400 6,500 900 3 13,100 4,000 9,100 4 7,560 3,122 4,438 18% 20% 14.72% The company has been using the internal rate of return as a project justification tool, and these projects will be evaluated based on the principle of rate of return. The firm's minimum required rate of return is known to be 12%. Which project should you select? O a. Select B, because it recovers most of investment during the first year. O b. Select A, because its increment of investment exceeds 12%. O c. Select B, because its rate of return is higher than A with the same initial investment. O d. Select B, because it can generate 20% profit (as opposed to 18 % for project A) for every dollar invested.

A manufacturing company is considering two types of industrial projects that require the same level of initial investment but provide different levels of operating cash flows over the project life. The in house engineer has compiled the following financial data related to both projects, including the rate of return figures. Net Cash Flow Incremental (A - B) n Project A Project B 0 -$18,000 -$18,000 0 1 960 11,600 -10,640 2 7,400 6,500 900 3 13,100 4,000 9,100 4 7,560 3,122 4,438 18% 20% 14.72% The company has been using the internal rate of return as a project justification tool, and these projects will be evaluated based on the principle of rate of return. The firm's minimum required rate of return is known to be 12%. Which project should you select? O a. Select B, because it recovers most of investment during the first year. O b. Select A, because its increment of investment exceeds 12%. O c. Select B, because its rate of return is higher than A with the same initial investment. O d. Select B, because it can generate 20% profit (as opposed to 18 % for project A) for every dollar invested.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of 700,000. Use the present value tables appearing in Exhibits 2 and 5 of this chapter. b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of 500,000, 700,000, and 900,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar. d. Interpret the results of parts (a), (b), and (c).
The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
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