(a) What is the internal rate of return of this investment? (b) The hurdle rate is 13.5%. Should the company invest in this project on the basis of internal rate a. Internal rate of return b. Should the company invest in this project on the basis of internal rate of return? %

(a) What is the internal rate of return of this investment? (b) The hurdle rate is 13.5%. Should the company invest in this project on the basis of internal rate a. Internal rate of return b. Should the company invest in this project on the basis of internal rate of return? %

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...

See similar textbooks

Related questions

Q: Prepare the journal entries at December 31, 2020, to record pension expense and related pension…

A: Pension is the amount of money that an individual saves for his or her retirement. It is a…

Q: The following information relates to Vice Versa Ventures for calendar year 20XX, the company’s first…

A: An income statement is the profit and loss statement created to determine the net profit and loss a…

Q: Denzil Co. purchased land as a factory site for $600,000. Denzil paid $60,000 to tear down two…

A: Certain expenses incurred when purchasing land should be classified as land because they are…

Q: How does a firm evaluate if it has too many or too few current assets vs. its current liabilities?…

A: A firm evaluate if it has too many or too few current assets vs. its current liabilities by…

Q: Required Compute the following ratios for the companies' 2019 fiscal years (year ending in December…

A: 1. Current ratio: To calculate the ratio, analysts compare a company’s current assets to its…

Q: 41. On July 1, 2022, Exploding Kittens Company acquired 700,000 shares of Bad Dog Company at a price…

A: Goodwill is the amount which is paid in excess of the fair value of identifiable net assets acquired…

Q: Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier.…

A: A flexible budget predicts how the revenues and expenses will change in response to changes in the…

Q: 3-Dec Mrs. Veena started business by introducing cash R$5000 and Rs 500000 as transfer from her…

A: Journal Entry :— It is an act of recording transaction in books of account when transaction…

Q: Explain the role of LLP in business decision making with suitable examples

A: Answer:- LLP meaning:- By collaborating, limited liability partnerships (LLPs) enable partners to…

Q: A candidate for presidency, during one of his rallies, claimed that his main platform is to help the…

A: A tax exemption is the legal privilege to have all or a portion of your income excluded from taxes…

Q: visit to reach the mont

A: Answer : Break even point = Fixed cost / Contribution margin per unit Contribution margin per unit =…

Q: Victor Mineli, the new controller of Ivanhoe Company, has reviewed the expected useful lives and…

A: The straight-line method of depreciation is one of the most basic ways of determining the annual…

Q: During the first month of operations ended May 31, Big Sky Creations Company produced 40,000…

A: "Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: BE11.2 (LO 2), AP On May 10, Pilar Corporation issues 2,500 shares of $5 par value common stock for…

A: Common stock refers to the stock that does not have any preferential rights over other stocks. These…

Q: 6. The budgeted overheads and cost driver volumes of XYZ are as follows. Cost pool Budgeted…

A: An activity-based costing system identifies different activities in a production run (called cost…

Q: ts decreased from $200,000 to $150,000 and variable cost per unit of $ 5 remained unchanged. How…

A: Answer : Every decrease in price will decrease the contribution margin. If contribution margin is…

Q: William wants to establish a scholarship fund at his former university. He would like the recipients…

A: Present value (PV) is the present value of a future quantity of money or cash flow stream, assuming…

Q: 4. Compute the total period costs 5. Calculate the overhead variance and explain why it is favorable…

A: "Since you have asked multiple questions, we will solve first question for you. If you want any…

Q: No. Audit procedures 1 Compare the client's stock-count report at an interim date with the perpetual…

A: Audit objective of Test of Control & Substantive Test procedure: The part of an audit known as…

Q: Assume that you are an audit senior in charge of planning the audit of an entity that your firm has…

A: INTERNAL CONTROL IS A PROCESS FOR ASSURING OF AN ORGANIZATIONS OBJECTIVES IN OPERATIONAL…

Q: Determine the marketing return on sales (marketing ROS) and return on marketing investment…

A: The amount that is calculated for the purpose of finding out whether the current marketing strategy…

Q: 5. The following accounts were taken from Nash Inc.'s trial balance at December 31, 2025. Net credit…

A: Bad debts expense: Bad debts expense is recognized in the books of the company when a debtor is…

Q: 44. Companies X, Y, and Z, parties to a consolidation, have the following data: X Co. Net assets…

A: Answer:- Ratio meaning:- The reciprocity of this relationship tells us how many times one quantity…

Q: iscuss two approaches of segment reporting

A: The segment reporting is the part of the reporting of the operational segment of the company in this…

Q: What is meant by bond issue cost and how do we account for such bond

A: Bonds refers to financial instrument which issued by the companies in order to borrow money. The…

Q: GS = $390,000 •GM = 56% •Store size: 20 ft x 25 ft. •2,500 transactions •5,000 units sold…

A: Answer : Gross margin =( Revenue - COGS)/Revenue*100 56 = Revenue - $390,000/Revenue *100 56Revenue…

Q: The capital investment committee of Taiwan Semiconductor Company is considering two capital…

A: Formula: Average rate of return=Average annual profitInitial investment×100 Net present value=Total…

Q: -Prorate the total cost overhead for Plates.

A: Calculation Total overhead=$350,000 Total direct cost=$650,000+$460,000+$850,000…

Q: 4SMC entered into a long-term construction contract for 3 years. Contract price agreed was…

A: When the outcome of a construction contract can be estimated reliably, contract revenue and contract…

Q: WHAT IS A DISTRUBUTED LEDGER?

A: A distributed ledger is a digital record of transactions that is shared across a network of…

Q: In 2022, Zach is single with no dependents. He is not claimed as a dependent on another's return.…

A: Tax credits are sums of money that taxpayers can immediately deduct from their tax liabilities. Tax…

Q: Question 3: In preparing its accounts for the year ended 30 June 20X5, XXY plc has the following…

A: When a cost that is incurred will have been used, or expired in a year or less, it is typically…

Q: CHA Cash Accounts receivable Inventory Buildings and equipment Goodwill Total Assets Accounts…

A: Purchase consideration indicates the payment made by the acquiring company to the subsidiary company…

Q: 4. At the end of its first year of operations, December 31, 2025, Swifty Inc. reported the following…

A: The accounts receivable is the amount that is received in the future. The amount of the accounts…

Q: Ma Mannheim Corporation is ready to emerge from Chapter 11 bankruptcy under a reorganization plan…

A: The creditors represented by the prepetition liabilities subject to compromise agree to take…

Q: EMathews, Inc. generated $200,000 in sales revenues and incurred fixed costs of $30,000. If the…

A: The margin of safety is the gap between predicted profitability and the point of break-even. The…

Q: I.In a wood toy production company, $500 wood, $20 glue and $10 nails was send to the production…

A: Disclaimer : "Since you have asked multiple questions, we will solve the first question for you.…

Q: Entries for Selected Corporate Transactions Nav-Go Enterprises Inc. produces aeronautical navigation…

A: Stockholder's Equity -Stockholder's Equity includes the amount contributed by shareholders issued in…

Q: November 11, 2022On January 1, 2011, Rand Corp. issued shares of its common stock to acquire all of…

A: Workings: Amortization Expenses for Building $6,000 ($60,000 / 10 Years) Amortization…

Q: A design studio received a loan of $6,750 at 5.80% compounded semi-annually to purchase a camera. If…

A: An amortization plan for a loan shows every periodic payment, including the principal and interest…

Q: Varsity Supplies & Things is a family-owned store. The business is now approaching the end of the…

A: A cash budget is an estimate of a corporation's cash flows for a given time span. A cash budget is…

Q: xed manufacturing cost n manufacturing cost selling and administrative cost fixed selling and…

A: Answer : Markup percentage = (Unit sales price - Unit variable cost) / Unit variable cost Units…

Q: The unadjusted trial balance of Digit Line Co., as of July 31, 2013 is provided below. The company…

A: Adjusting Entry – Adjusting Entries are the entries that make the accrual principle work for the…

Q: Dividends Per Share Internal Insights Inc., a developer of radiology equipment, has stock…

A: The dividend is paid to shareholders from the retained earnings of the business. The dividend is…

Q: Roe Construction Company uses the percentage-of-completion method of accounting. In 2021, Roe began…

A: Under the Percentage of completion method, the revenue is recognized at different stages as agreed…

Q: Dr. Brown was involved in a friend's business, Mining - co. Dr. Brown was hesitant to get involved…

A: Financial securities are monetary assets that can be traded and have financial value. Securities are…

Q: Outline the difference between design capacity and effective capacity

A: Designing capacity is associated with the maximum designs service or output that can be generated so…

Q: A schedule of expected cash disbursements for accounts payable for each of the months January to…

Q: What is a key difference between variable costing and absorption costing? a. The usage of…

A: Variable costing is a management and cost accounting concept in which fixed manufacturing overhead…

Q: What is the effective interest rate (APY) for a loan of $8,500 at 12% APR compounded monthly? use…

A: We can use following formula to find the annual effective rate form given APR I = (1 + ( r/n ))n…

Question

GTO Incorporated is considering an investment costing $204,330 that results in net cash flows of $30,000 annually for
15 years. (PV of $1. FV of $1. PVA of $1. and FVA of $1) (Use appropriate factor(s) from the tables provided.)
(a) What is the internal rate of return of this investment?
(b) The hurdle rate is 13.5%. Should the company invest in this project on the basis of internal rate of return?
a. Internal rate of return
b. Should the company invest in this project on the basis of internal rate of return?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Jasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?
Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Assume a company is going to make an investment of $450,000 in a machine and the following are the cash flows that two different products would bring in years one through four. Which of the two options would you choose based on the payback method?
Wansley Lumber is considering the purchase of a paper company, which would require an initial investment of $300 million. Wansley estimates that the paper company would provide net cash flows of $40 million at the end of each of the next 20 years. The cost of capital for the paper company is 13%. Should Wansley purchase the paper company? Wansley realizes that the cash flows in Years 1 to 20 might be $30 million per year or $50 million per year, with a 50% probability of each outcome. Because of the nature of the purchase contract, Wansley can sell the company 2 years after purchase (at Year 2 in this case) for $280 million if it no longer wants to own it. Given this additional information, does decision-tree analysis indicate that it makes sense to purchase the paper company? Again, assume that all cash flows are discounted at 13%. Wansley can wait for 1 year and find out whether the cash flows will be $30 million per year or $50 million per year before deciding to purchase the company. Because of the nature of the purchase contract, if it waits to purchase, Wansley can no longer sell the company 2 years after purchase. Given this additional information, does decision-tree analysis indicate that it makes sense to purchase the paper company? If so, when? Again, assume that all cash flows are discounted at 13%.
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
Towson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. What Is the Investments internal rate of return?
Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?