Please explain the answer thoroughly and support it with an example. True or False: In preference decisions, the profitability index and internal rate of return methods will rank projects in the same order of preference.

Please explain the answer thoroughly and support it with an example. True or False: In preference decisions, the profitability index and internal rate of return methods will rank projects in the same order of preference.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3DQ

See similar textbooks

Related questions

Q: Is the net-investment test the only way to accurately predict projectborrowing?

A: Net investment refers to the total amount of money that a company invests in capital assets which is…

Q: How can we use the internal rate of return to evaluate whether we should pursue a specific project?…

A: It is important for the investors to evaluate the project in all aspects before making any…

Q: Which of the following best explains the limitations of usin discount rate for evaluating projects?

A: Note: 'Since you have asked multiple questions, we will solve the first question for you. If you…

Q: Your firm is considering what has been estimated to be a positive NPV project (NPV > 0). What can…

A: Net present value is the different between present value of the cash outflows and present value of…

Q: Why would the average rate of return differ from the internal rate of return on the same project

Q: You are considering the following projects but have limited funds to invest and can't take them all.…

A: Profitability index: It is the ratio of present value of cash inflows and present value of out…

Q: Your firm is considering what has been estimated to be a positive NPV project (NPV > 0). What can…

A: Net Present Value (NPV) is based on the time value of money and is calculated as the sum of present…

Q: Use the information below and help the management in choosing the most desirable Project using all…

A: The question is based on the concept of Financial Management. As per the Bartleby guidelines we are…

Q: Which of the following statements is (are) true about project appraisal methods: (i) NPV is the…

A: (i) NPV is the best measure for project appraisal even when capital is rationed. There is no such…

Q: What is required // calculate the required rate of return with an opinion on acceptance or rejection…

A: Rate of return is the return is the return received from an investment. It is the real return…

Q: Many times, project decision makers do not rely solely on financialhurdles, such as return on…

A: Intangible factors are those factors which can not be seen touched or felt. These factors are really…

Q: Evaluate the projects using each of the following criteria, stating which project(s) Insignia…

A: Payback period is the time taken by project cash inflows to recover initial investment. Discounted…

Q: The board of directors of AMSB are confused between IRR and NPV. Briefly discuss the Internal Rate…

A: The internal rate of return method is a capital budgeting method which helps in finding out the rate…

Q: Use the information below and help the management in choosing the most desirable Project using a.…

A: Capital budgeting is referred as the process of decision making which is used by companies to…

Q: Which of the following decision measures should capital budgeting decision makers consider? Select…

A: Solution:- Capital budgeting means investment decision. It involves various methods and techniques…

Q: You are analyzing a project and have prepared the following data: a. Based on the net present…

A: IRR is the rate at which NPV is zero.

Q: Under what circumstances will you prefer profitability index to NPV as project evaluation…

A: Capital budgeting analysis is useful to know which projects are profitable and which are not. There…

Q: The minimum acceptable rate of return vary from project to project for which reason? Select one: a.…

A: Minimum Acceptable Rate of Return (MARR) is the target rate of return used to evaluate the project…

Q: t are the problems in using the Internal Rate of Return method when making decisions on which…

A: Internal rate of return is rate at which present value of cash flow is equal to the initial…

Q: The analysis of the effect that a single variable has on the net present value of a project is…

A: Sensitivity analysis is also known as what if analysis. It is a tool used to analyze how different…

Q: choosing the most desirable Project using Payback period а. b. Discounted payback c. Net Present…

A: The calculations and the steps can be seen below:

Q: Payback is best used to evaluate which types of project

A: Payback period is used to calculate the period in which our cash inflows will get equal to our cash…

Q: Why is the net-investment test the only way to accurately predict projectborrowing? Explain with an…

A: Definition: Net- investment measures the company's assets and investment like property, software,…

Q: PW, FW, and AW methods will yield the same recommendation regarding investment alternatives. True or…

A: To increase the wealth of shareholders, a company will only invest in projects that are profitable.…

Q: Critically discuss the Expected Net Present Value method (ENPV) and explain why it may be more…

A: Expected Net Present Value method is a method of capital budgeting. Under this method it is…

Q: If three investment alternatives all have some degree of risk and different expected returns, which…

A: If three investment alternatives all have some degree of risk and different expected returns. The…

Q: Compare and contrast the beta of the project and explain how it will affect the return on investment…

A: Beta coefficient shows the systematic risk of the assets. In simple words, the beta coefficient…

Q: Which of the following statements is CORRECT? O a. The NPV profile graph for a normal project will…

A: The net present value method is an important technique of capital budgeting and the time value of…

Q: Define each of the following investment rules and discuss any potential shortcomings of each. In…

A: Introduction: Capital budgeting is an investment criterion or decision making mechanism for…

Q: How is the Rate of return is an intuitively familiar and understandable measure of project?

A: Company enters into diversification once it reaches a profit level. Expanding the business is part…

Q: Answer the two questions below: a) What is the purpose of a project risk analysis, and why is it…

A: As you have asked multiple questions, we will solve the first question as per Bartleby policy.…

Q: Illustrate Investment Decision for a Nonsimple Project?

A: Investments: Companies invest in stocks and bonds of other companies or governmental entity to…

Q: In capital budgeting decisions, the profitability index and internal rate of return methods will…

A: IRR is the discount rate at which NPV of project is zero. In other words is rate which present value…

Q: a) Calculate the Internal Rate of Return (IRR), Profitability Index (PI) and Payback period for both…

A: The calculation for Option 1 using excel:

Q: Indicate whether its True or False. Then write the explanation! The twin advantages with using…

A: Capital budgeting techniques are used to determine whether the investment should be undertaken or…

Q: a. For each alternative project compute the net present value. b. For each alternative project…

A: Net Present Value (NPV) is measure through which we evaluate the financial viability of any project.…

Q: Which of the following theory is applicable to the following situation? A manager needs to raise…

A: In financial management, financing refers to the raising of funds by issue different types of…

Q: profitability

A: Profitability index is defined as the method of determining the attractiveness of an investment. The…

Q: 9. PW, FW, AW, and B/C methods will yield the same recommendation regarding investment alternatives.…

A: Following is the correct option

Q: Comparing the estimated net present values or internal rates of return for an investment using…

A: Net present value and IRR are methods of evaluating the projects.

Q: A firm is considering what has been estimated to be a positive NPV project (NPV > 0). What can you…

A: The capital budgeting decision depends upon the cash inflow and outflow of the projects. The project…

Q: Below are some statements about risk and investment appraisal. Which one is incorrect? A.…

A: risk increase with the length of a project.

Question

Please explain the answer thoroughly and support it with an example.

True or False:

In preference decisions, the profitability index and internal rate of return methods will rank projects in the same order of preference.

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

Expert Solution

This question has been solved!

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

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

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

The following profit payoff table was presented in Problem 1: The probabilities for the states of nature are P(s1) = 0.65, P(s2) = 0.15, and P(s3) = 0.20. What is the optimal decision strategy if perfect information were available? What is the expected value for the decision strategy developed in part (a)? Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? What is the expected value of perfect information?
Due to the limitations of the weighted scoring model (weighting scheme), briefly discuss how Coadycan use the following financial models for project selection.1. Net Present Value2. Payback Analysis
The project profitability index and the internal rate of return: Multiple Choice will always result in the same preference ranking for investment projects. will sometimes result in different preference rankings for investment projects. are less dependable than the payback method in ranking investment projects. are less dependable than net present value in ranking investment projects.
If a particular project has multiples rates of return (i.e., multiple values of IRR), it means that the project is economically more attractive as compared with a project with a single IRR. Group of answer choices True False
Comparing Investment Criteria. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Internal rate of return. c. Profitability index. d. Net present value.
It is good to compute first the additional benefits that a project can give and the additional cost incurred by implementing a project. This concept talks about a. Law of Supply and Demand b. Marginal Cost Benefit Analysis c. Time Value of Money d. Financial Ratios
What are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?
Suppose the net present values of projects A and B show a distribution as follows. a) Compare the projects by expected value criteria?b) Compare the projects by standard deviation criteria?c) Evaluate A and B projects according to the coefficient of variation criterion?Calculate on paper.
When you assign the highest anticipated sales and price and the lowest anticipated costs to a project, you are analyzing the project under the condition known as: base-case scenario analysis best-case sensitivity analysis worst-case sensitivity analysis best-case scenario analysis worst-case scenario analysis
Compare and contrast different project evaluation methods, including net present value (NPV), internal rate of return (IRR), and payback period. When is each method most suitable for project analysis?
Why are NPV, BCR, and IRR considered SUPERIOR indicators of Project Feasibility compared to Payback or Recoupment Period and Accounting Rates of Return? Explain briefly.
Which of the following statements is CORRECT? a. An NPV profile graph shows how a project's payback varies as the cost of capital changes. b. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. c. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. d. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV. Provide explanation for the choice