Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
14th Edition
ISBN: 9781337541398
Author: Carl Warren; James M. Reeve; Jonathan Duchac
Publisher: Cengage Learning
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Chapter 11, Problem 2PA
1. (a)
To determine
Calculate the cash payback period for the given projects.
1. (b)
To determine
Calculate the net present value of the investment of EA Incorporation.
2.
To determine
Prepare a brief report for advising management on the relative merits of each project.
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Cash payback period, net present value method, and analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:
Each project requires an investment of $900,000. A rate of 15% has been selected for the net present value analysis.
Instructions
1. Compute the following for each product:
a. Cash payback period.
b. The net present value. Use the present value of $1 table appearing in this chapter (Exhibit 2).
2. Prepare a brief report advising management on the relative merits of each project.
You are asked to evaluate the following two projects for the Norton Corporation. Using the net present value method
combined with the profitability index approach described in footnote 2 of this chapter, which project would you select? Use a
discount rate of 14 percent.
Project X (videotapes of the weather report) ($20,000 investment)
Year
Cash Flow
1.
$10,000
2
8,000
3
9.000
4
8.600
Project X (videotapes of the weather report) ($40,000 investment)
Year
Cash Flow
$20,000
2
13,000
3
14.000
4
16.800
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,017 and is expected to generate the following cash flows:
First Year
Second Year
Third Year
Total
Alpha Project
$32,000
$22,000
$4,500
$58,500
Beta Project
8,000
24,000
27,106
59,106
A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to calculate internal rate of return.
Alpha Project
fill in the blank 1%
Beta Project
fill in the blank 2%
B. Make a recommendation on which one to accept.
.
Chapter 11 Solutions
Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
Ch. 11 - What are the principal objections to the use of...Ch. 11 - Discuss the principal limitations of the cash...Ch. 11 - Prob. 3DQCh. 11 - Your boss has suggested that a one-year payback...Ch. 11 - Prob. 5DQCh. 11 - Prob. 6DQCh. 11 - A net present value analysis used to evaluate a...Ch. 11 - Two projects have an identical net present value...Ch. 11 - Prob. 9DQCh. 11 - What are the major disadvantages of the use of the...
Ch. 11 - Prob. 11DQCh. 11 - Prob. 12DQCh. 11 - Prob. 1BECh. 11 - Prob. 2BECh. 11 - Prob. 3BECh. 11 - Prob. 4BECh. 11 - Prob. 5BECh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Cash payback method Lily Products Company is...Ch. 11 - Prob. 7ECh. 11 - Prob. 8ECh. 11 - Prob. 9ECh. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14ECh. 11 - Prob. 15ECh. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 19ECh. 11 - Prob. 20ECh. 11 - Net present value-unequal lives Bunker Hill Mining...Ch. 11 - Prob. 22ECh. 11 - Average rate of return method, net present value...Ch. 11 - Prob. 2PACh. 11 - Net present value method, present value index, and...Ch. 11 - Net present value method, internal rate of return...Ch. 11 - Prob. 5PACh. 11 - Prob. 6PACh. 11 - Prob. 1PBCh. 11 - Prob. 2PBCh. 11 - Net present value method, present value index, and...Ch. 11 - Prob. 4PBCh. 11 - Prob. 5PBCh. 11 - Prob. 6PBCh. 11 - Prob. 1ADMCh. 11 - Prob. 2ADMCh. 11 - Prob. 3ADMCh. 11 - Ethics in Action Danielle Hastings was recently...
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