MANAGERIAL ACCOUNTING W/CONNECT
3rd Edition
ISBN: 9781307583946
Author: Whitecotton
Publisher: MCG/CREATE
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 11, Problem 4E
To determine
Concept introduction:
Capital Budgeting: Capital budgeting is the decision in which company can invest funds of long term nature which provide benefit in long term. Capital budgeting decisions involve huge amount of funds.
To calculate:
Accounting
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Use the information provided to answer the questions
Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places).Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). Use your answers from previous question to recommend the project that should be chosen. Motivateyour choice.
Use the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.5.15.1.1 Calculate the Payback Period of Project A (expressed in years, months and days).
INFORMATION
Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000
Additional informationThe discount rate used by the company is 12%.
Struggling to find the payback period and NPV. I believed
pay period to be annual net income+depreciation, then
divide that number into initial investment. Please if you
can, show me what the right equation is? Thank you for
the help in advance.
Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Various
information about the proposed investment follows: (Future Value of $1, Present Value of $1. Future Value Annuity of $1. Present Value
Annuity of $1.)
Note: Use appropriate factor(s) from the tables provided.
Initial investment (for two hot air balloons).
Useful life
Salvage value
Annual net income generated
BBS's cost of capital
Assume straight line depreciation method is used.
Required:
Help BBS evaluate this project by calculating each of the following:
1. Accounting rate of return.
Note: Round your answer to 2 decimal places.
$ 536,000
Answer is not complete.
1. Accounting rate of return
2. Payback period…
Chapter 11 Solutions
MANAGERIAL ACCOUNTING W/CONNECT
Ch. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Which capital budgeting methods incorporate the...Ch. 11 - What is a company’s hurdle rate? How is it...Ch. 11 - How do cash flow and net income differ? Explain...Ch. 11 - In everyday terms, explain what information the...Ch. 11 - What do a positive NPV and a negative NPV indicate...Ch. 11 - Prob. 9QCh. 11 - Prob. 10Q
Ch. 11 - Why is the net present value method generally...Ch. 11 - Briefly explain how the profitability mdcx is...Ch. 11 - Prob. 13QCh. 11 - Prob. 14QCh. 11 - Prob. 15QCh. 11 - When would you use the PV of annuity table instead...Ch. 11 - Prob. 17QCh. 11 - Which of the following requires managers to...Ch. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Prob. 5MCCh. 11 - Prob. 6MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Prob. 10MCCh. 11 - Matching Key Terms and Concepts to DefinitionsCh. 11 - Prob. 2MECh. 11 - Prob. 3MECh. 11 - Prob. 4MECh. 11 - Prob. 5MECh. 11 - Prob. 6MECh. 11 - Prob. 7MECh. 11 - Prob. 8MECh. 11 - Computing Present Value of Complex Contract As a...Ch. 11 - Prob. 11MECh. 11 - Prob. 12MECh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 8ECh. 11 - Prob. 9ECh. 11 - Using NPV to Evaluate Mutually Exclusive Projects...Ch. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 1.1GAPCh. 11 - Prob. 1.2GAPCh. 11 - Prob. 1.3GAPCh. 11 - Prob. 1.4GAPCh. 11 - Prob. 1.5GAPCh. 11 - Prob. 2.1GAPCh. 11 - Prob. 2.2GAPCh. 11 - Prob. 2.3GAPCh. 11 - Prob. 2.4GAPCh. 11 - Prob. 2.5GAPCh. 11 - Making Automation Decision Beacon Company is...Ch. 11 - Prob. 3.1GAPCh. 11 - Prob. 3.2GAPCh. 11 - Prob. 3.3GAPCh. 11 - Prob. 3.4GAPCh. 11 - Prob. 4.1GAPCh. 11 - Prob. 4.2GAPCh. 11 - Prob. 4.3GAPCh. 11 - Prob. 4.4GAPCh. 11 - Prob. 4.5GAPCh. 11 - Prob. 5.1GAPCh. 11 - Prob. 5.2GAPCh. 11 - Prob. 6.1GAPCh. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Prob. 1.1GBPCh. 11 - Prob. 1.2GBPCh. 11 - Prob. 1.3GBPCh. 11 - Prob. 1.4GBPCh. 11 - Prob. 1.5GBPCh. 11 - Prob. 2.1GBPCh. 11 - Prob. 2.2GBPCh. 11 - Prob. 2.3GBPCh. 11 - Prob. 2.4GBPCh. 11 - Prob. 2.5GBPCh. 11 - Prob. 2.6GBPCh. 11 - Prob. 3.1GBPCh. 11 - Comparing, Prioritizing Multiple Projects Harmony...Ch. 11 - Prob. 3.3GBPCh. 11 - Prob. 3.4GBPCh. 11 - Prob. 4.1GBPCh. 11 - Prob. 4.2GBPCh. 11 - Prob. 4.3GBPCh. 11 - Prob. 4.4GBPCh. 11 - Prob. 4.5GBPCh. 11 - Prob. 5.1GBPCh. 11 - Prob. 5.2GBPCh. 11 - Prob. 6.1GBPCh. 11 - Prob. 6.2GBPCh. 11 - Prob. 6.3GBPCh. 11 - Prob. 6.4GBP
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
- 4. Middleton Classics would like to test the sensitivity of the estimates used for the input data to compute the net present value and internal rate of return on this investment. Ignore the payback period and the accounting rate of return. Consider a, b, and c below independently by holding everything else constant: a. What is the minimum cost of the investment (to the nearest $100) needed for the owner to accept it? b. Reset cost to $500,000. What is the minimum salvage value (to the nearest $100) needed for the owner to accept it? c.Reset salvage value to $25,000. What is the minimum annual cash flow (to the nearest $100) needed for the owner to accept it? How sensitive to changes in the input data is the decision to accept or reject this investment? Do you have to change the estimates a lot or just a little to make the investment acceptable? Comment on the results of each of these analyses.arrow_forwardDuraTech Manufacturing is evaluating a process improvement project. The estimated receipts and disbursements associated with the project are shown below. MARR is 6%/yr. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should DuraTech implement the proposed process improvement?arrow_forwardThe table below shows the profit after tax and the book value of investment for three projects A, B, and C Required:Calculate the Accounting Rate of Return (ARR) of the three projects and recommend the best option based on your calculation.arrow_forward
- A company is considering three alternative Investment projects with different net cash flows. The present value of net cash flows is calculated using Excel and the results follow. Potential Projects Present value of net cash flows (excluding initial investment) Initial investment Complete this question by entering your answers in the tabs below. a. Compute the net present value of each project. b. If the company accepts all positive net present value projects, which of these will It accept? c. If the company can choose only one project, which will it choose on the basis of net present value? Required A Required B Compute the net present value of each project. Potential Projects Project A Present value of net cash flows Initial investment Net present value Required C Project E Project C $10,685 (10,000)arrow_forwardShow the answer on excel and how you did it: Puppet is evaluating two alternative, mutually exclusive methods for delivering cloud platforms It has developed the following estimated after-tax cost savings for each alternative. Project managers want to see an incremental IRR and NPV before making the decision. If the project discount rate is 9%, which method would you recommend? Explain and provide evidence. Show all cash flows and related analyses. Clearly specify your recommendation and reasoning clearly on your worksheet. clearly show inputs and outputs areas.(Input Area: Show all of your key inputs, with appropriate labels, before creating your analysis. Add lines as needed.)(Output Area: Show the development of your answers to each question below. Clearly label inputs, steps and identify key results.) Project cash flows are as follows: Software Solution 1: To: -115,000, T1: 45,000, T2: 40,000, T3: 35,000, T4: 20,000, T5: 10,000 Software Solution 2: To: -175,000, T1: 5,000,…arrow_forwardBarnard Manufacturing is considering three capital investment proposals. At this time, Barnard only has funds available to pursue one of the three investments. |(Click the icon to review the proposals.) Which investment should Barnard pursue at this time? Why? Since each investment requires a different initial investment and presents a positive NPV, Barnard Manufacturing should use the profitability index to compare the profitability of each investment. Select the labels for the evaluation measure you determined above. Enter the amounts into the formula, beginning with Equipment A, and calculate the amount you will use to evaluate each investment. (Enter all amounts as positive numbers. Round the evaluation measure to two decimal places, X.XX.) - X Data Table Equipment A Equipment B Equipment C Present value of net cash inflows 1,832,478 S 1,865,471 $ 2,169,724 (1,650,881) (1,516,643) (1,749,777) Initial Investment 181,597 S 348,828 S 419,947 NPV Print Donearrow_forward
- You are considering investing in real estate—both for the short-term cash flows and the potential long-term capital gains—and are evaluating both a commercial lease property (such as a strip shopping center or an office building) and a residential rental property (such as several rental houses or a small apartment complex). It is likely that you will invest in only one of these properties at this time. The general data regarding these investments is as follows: propertytype price mortage rental income (per year) depreciationexpense (per year) Estimatedresalevalue small office $800,000 $448,000 $136,016 $7,692 $912,000 rental homes $650,000 $292,500 $91,281 $8,273 $685,100 The first potential investment consists of an office building with ten offices, which has a current market price of $800,000. Of this amount, $200,000 represents the cost of the land, and the balance, $600,000, is attributable to buildings on the property. The second possible investment, which…arrow_forwardNet Present Value and Internal Rate of Return. Below are the projected revenues and expenses for a new clinical nurse specialist program being established by your healthcare organization. The nurses would provide education while patients are in the hospital and home visits are on a fee-for-service basis after patients have been discharged Should the hospital undertake the program if its required rate of return is 12%? Note: it must be assumed that the revenues and costs in this problem represent cash flows. Present value analysis is based on cash, not revenue or expenses. Provide a response to support the findings in the table listed below. Your response should be at least a half page long in addition to the table. Please include citations. Year One Year Two Year Three Year Four Total Revenue $100,000 $150,000 $200,000 $250,000 $700,000 Costs $150,000 $150,000 $150,000 $150,000 $600,000 $ <50,000> $0 $50,000 $100,000…arrow_forwardYou are opening up a brand new retail strip mall. You presently have more potential retail outlets wanting to locate in your mall than you have space available. What is the most appropriate tool to use if you are trying to determine the optimal allocation of your retail space? A. payback period B. profitability index C. internal rate of return (IRR) D. discounted payback period O E. net present value (NPV)arrow_forward
- Mf4. 1. Calculate the Payback period 2. Calculate the Net Present Value (NPV) of both projects 3. Calculate the Internal Rate of Return (IRR) of both projects 4. Critically discuss the merits of each investment appraisal method, then discuss the result of the evaluations you have made of the two projects and advise the company which project should be undertakenarrow_forwardREQUIRED Use the information provided below to answer the following questions: 3.1. Calculate the Payback period for the HMC. 3.2. Calculate the Net Present Value for both the HMC and VMC. 3.3. Calculate the Internal Rate of Return (IRR) for the HMC and VMC. 3.4. Which configuration of the CNC machining centres should SMT purchase, if any? Motivate your answer by referring to the answers obtained in questions 3.3 and 3.4. INFORMATION Southern Manufacturing Tools Limited (SMT) is considering the purchase of a Computer Numerical Control (CNC) machining centre for its operations. Two configurations of the CNC machining centres are available: horizontal CNC machining centre (HMC) and vertical CNC machining centre (VMC). Both the HMC and VMC will require an initial investment of R10 000 000, will have a useful life of 7 years and a residual value of R1 500 000. SMT uses the straight-line method of depreciation. The expected net cash inflows of the VMC are expected to be R2 100 000…arrow_forward10. Briefly answer the following questions 1. Why is it important to distinguish between long-term or short-term financing?' 2. Discuss when to use short-term and long-term funds in business.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License