NOTE: JUST ANSWER 3. Accounting rate of return4. Profitability index YOURUNDARSIANDINGDirections: Evaluate the following projects. Which is the best among them using the differenttools in capital budgeting?Use the following tools to make yourProjectCash outlayAВP920,000decisions:P1,000,000310,000P880,0001. Payback period2. Net present value3. Accounting rate of return4. Profitability indexNet Cash inflow Year 1200,000290,000Year 2310,000220,000280,000Year 3310,000250,000300,000Year 4310,000180,000250,000Year 5310,00090,000295,000Year 6310,00090,000195,000Salvage value70,00080,000Discount rate10%8%12%Economic life4 years5 years6 years

Calculation of Annual Rate of Return(ARR) Calculation of Average net income Project A Project B…

YOUR Directions: Evaluate the following projects. Which is the best among them using the different tools in capital budgeting? UNDERSFANDING Use the following tools to make your Project Cash outlay A В P1,000,000 P880,000 P920,000 decisions: 1. Payback period 2. Net present value 3. Accounting rate of return 4. Profitability index Net Cash inflow Year 1 310,000 310,000 200,000 290,000 Year 2 220,000 280,000 Year 3 310,000 250,000 300,000 Year 4 310,000 180,000 250,000 Year 5 310,000 90,000 295,000 Year 6 310,000 90,000 195,000 Salvage value 70,000 80,000 Discount rate 10% 8% 12% Economic life 4 years 5 years б уears

YOUR Directions: Evaluate the following projects. Which is the best among them using the different tools in capital budgeting? UNDERSFANDING Use the following tools to make your Project Cash outlay A В P1,000,000 P880,000 P920,000 decisions: 1. Payback period 2. Net present value 3. Accounting rate of return 4. Profitability index Net Cash inflow Year 1 310,000 310,000 200,000 290,000 Year 2 220,000 280,000 Year 3 310,000 250,000 300,000 Year 4 310,000 180,000 250,000 Year 5 310,000 90,000 295,000 Year 6 310,000 90,000 195,000 Salvage value 70,000 80,000 Discount rate 10% 8% 12% Economic life 4 years 5 years б уears

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

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Similar questions

Define each of the following terms: Capital budgeting; payback period; discounted payback period Independent projects; mutually exclusive projects Net present value (NPV) method; internal rate of return (IRR) method; profitability index (PI) Modified internal rate of return (MIRR) method NPV profile; crossover rate Nonnormal cash flow projects; normal cash flow projects; multiple IRRs Reinvestment rate assumption Replacement chain; economic life; capital rationing; equivalent annual annuity (EAA)
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Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR / CASH FLOW (A) /CASH FLOW (B)0 -$17,000 -$17,0001 8,000 2,0002 7,000 5,0003 5,000 9,0004 3,000 9,500 a)The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the way to go when it is compared with IRR? In other words what are the shortcomings of IRR method? b)Calculate the Profitability Index for each proposal. Which project should you accept? Can this measure help to solve the dilemma?…
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR / CASH FLOW (A) /CASH FLOW (B)0 -$17,000 -$17,0001 8,000 2,0002 7,000 5,0003 5,000 9,0004 3,000 9,500 a. Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case. b. Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings. c. Calculate the Internal Rate of Returns (IRR) for both projects (use excel). Which…
A capital budgeting project is expected to have the following cash flows: Year Cash Flows 0 -$500,000 1 $300,000 2 $300,000 3 $200,000 4 $100,000 What is the project's net present value at a 12% required rate of return? Group of answer choices $276,475 $225,868 $212,923 $200,373