od Given the following two projects and their cash flows, EE calculate the discounted payback period with a discount rate of 4%, 12%, and 20%. What do youa this relationship.- Xthe cash outflow for project A is: (Select ti Data Tableyears.(Click on the following icon in order to copy its contents into a spreadsheet.)ears.ears.Cash Flowrered.Cost$12,000$110,000Cash flow year 1$4,286$11,000$4.286$22,000Cash flow year 2Cash flow year 3Cash flow year 4Cash flow year 5Cash flow year 6$4,286$33,000$4,286$4,286$44,000$16.500SO$4,286PrintDone Discounted payback period. Given the following two projects and their cash flows,calculate the discounted payback period with a discount rate of 4%, 12%, and 20%. What do you notice about the payback period as thediscount rate rises? Explain this relationship.With a discount rate of 4%, the cash outflow for project A is: (Select the best response.)O A. recovered in 3.03 years.O B. recovered in 3 years.O C. recovered in 5 years.O D. never fully recovered.thon clirk Check Answer

Discounted Payback Payback period is the time period in which initial cost if fully recovered using…

Discounted payback period. Given the following two projects and their cash flows, calculate the discounted payback perlod with a discount rate of 4%, 12%, and 20% What do you notice about the payback period as the discount rate rises? Explain this relationship. With a discount rate of 4%, the cash outflow for project A is: (Select the best response.) O A. recovered in 3.03 years. O B. recovered in 3 years. O C. recovered in 5 years. O D. never fully recovered

Discounted payback period. Given the following two projects and their cash flows, calculate the discounted payback perlod with a discount rate of 4%, 12%, and 20% What do you notice about the payback period as the discount rate rises? Explain this relationship. With a discount rate of 4%, the cash outflow for project A is: (Select the best response.) O A. recovered in 3.03 years. O B. recovered in 3 years. O C. recovered in 5 years. O D. never fully recovered

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 4CMA

See similar textbooks

Similar questions

There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment or $28.000 and is expected to generate the following cash flows: If the discount rate is 5% compute the NPV of each project and make a recommendation of the project to be chosen.
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?
Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.
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)?
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.
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?
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix 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?
Assume Home Garden Inc. in MAD 26-5 assigns the following probabilities to the estimated construction cost of the warehouse and annual net cash flows: a. Compute the expected value of the construction cost. b. Compute the expected value of the annual net cash flows. c. Determine the expected net present value of building the distribution warehouse, assuming a desired rate of return of 14% and using the expected values computed in parts (a) and (b). Use the present value tables provided in Appendix A. Round to the nearest dollar. d. Based on your results in part (c), should Home Garden Inc. build the distribution warehouse?
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?
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: If the discount rate is 12%, compute the NPV of each project.