NEW MyLab Accounting with Pearson eText -- Access Card -- for Managerial Accounting
4th Edition
ISBN: 9780133451481
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
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Question
Chapter 12, Problem 12.14SE
To determine
The missing figures in the statement with appropriate capital budgeting method.
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You are responsible to make a recommendation to the college regarding the upcoming capital projects. Be sure to evaluate each project using payback, NPV, IRR and PI capital budgeting techniques. We do not have enough money to do both projects, please evaluate both and make your recommendation. Both projects will require an original cash investment of $1,500,000. We are considering a renovation to the classrooms (project A) and a renovation to the library (Project B). The classroom update will provide revenue of $700,000 and the library $900,000 year one. For the classroom update, cash inflow will be $300,000 years 1 & 2, $400,000 years 3 & 4 and $100,000 each year 5 and beyond. The library will have cash inflow of $500,000 years 1, 2, &3 and 100,000 each additional year after that. The college has a payback policy of 5 years and our cost…
Defining capital investments and the capital budgeting process
Match each definition with its capital budgeting method.
Methods
1. Accounting rate of return
2. Internal rate of return
3. Net present value
4. Payback
Definitions
a. Is only concerned with the time it takes to get cash outflows returned.
b. Considers operating income but not the time value of money in its analyses.
c. Compares the present value of cash outflows to the present value of cash inflows to determine investment worthiness.
d. The true rate of return an investment earns.
Chapter 12 Solutions
NEW MyLab Accounting with Pearson eText -- Access Card -- for Managerial Accounting
Ch. 12 - Prob. 1QCCh. 12 - (Learning Objective 2) After identifying potential...Ch. 12 - Prob. 3QCCh. 12 - Prob. 4QCCh. 12 - Prob. 5QCCh. 12 - Prob. 6QCCh. 12 - Prob. 7QCCh. 12 - Prob. 8QCCh. 12 - Prob. 9QCCh. 12 - (Learning Objective 5) Which of the following...
Ch. 12 - Order the capital budgeting process (Learning...Ch. 12 - Prob. 12.2SECh. 12 - Prob. 12.3SECh. 12 - Prob. 12.4SECh. 12 - Prob. 12.5SECh. 12 - Prob. 12.6SECh. 12 - Prob. 12.7SECh. 12 - Prob. 12.8SECh. 12 - Prob. 12.9SECh. 12 - Prob. 12.10SECh. 12 - Prob. 12.11SECh. 12 - Prob. 12.12SECh. 12 - Prob. 12.13SECh. 12 - Prob. 12.14SECh. 12 - Prob. 12.15SECh. 12 - Identify ethical standards violated (Learning...Ch. 12 - Prob. 12.17AECh. 12 - Compute payback period and analyze changes...Ch. 12 - Prob. 12.19AECh. 12 - Prob. 12.20AECh. 12 - Prob. 12.21AECh. 12 - Prob. 12.22AECh. 12 - Calculate the payback and NPV for a sustainable...Ch. 12 - Prob. 12.24AECh. 12 - Prob. 12.25AECh. 12 - Prob. 12.26AECh. 12 - Prob. 12.27AECh. 12 - Prob. 12.28AECh. 12 - Prob. 12.29AECh. 12 - Prob. 12.30AECh. 12 - Prob. 12.31AECh. 12 - Prob. 12.32AECh. 12 - Prob. 12.33AECh. 12 - Prob. 12.34AECh. 12 - Prob. 12.35AECh. 12 - Prob. 12.36BECh. 12 - Prob. 12.37BECh. 12 - Prob. 12.38BECh. 12 - Prob. 12.39BECh. 12 - Prob. 12.40BECh. 12 - Prob. 12.41BECh. 12 - Prob. 12.42BECh. 12 - Prob. 12.43BECh. 12 - Prob. 12.44BECh. 12 - Prob. 12.45BECh. 12 - Prob. 12.46BECh. 12 - Prob. 12.47BECh. 12 - Prob. 12.48BECh. 12 - Prob. 12.49BECh. 12 - Prob. 12.50BECh. 12 - Prob. 12.51BECh. 12 - Prob. 12.52BECh. 12 - Prob. 12.53BECh. 12 - Prob. 12.54BECh. 12 - Prob. 12.55APCh. 12 - Prob. 12.56APCh. 12 - Prob. 12.57APCh. 12 - Prob. 12.58APCh. 12 - Prob. 12.59BPCh. 12 - Prob. 12.60BPCh. 12 - Evaluate an investment using all four methods...Ch. 12 - Prob. 12.62BPCh. 12 - Prob. 12.63SCCh. 12 - Discussion Questions 1. Describe the capital...Ch. 12 - Prob. 12.65ACTCh. 12 - Prob. 12.66ACTCh. 12 - Prob. 12.67ACT
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Similar questions
- Capital Budgeting Decisions A college intern working at Anderson Paints evaluated potential investments using the firm’s average required rate of return (r) as the discount rate in the evaluation process and he produced the following report for you as the capital budgeting manager at Anderson Paints: Project NPV IRR Risk LOM $1,500 12.5% High QUE 0 11.0 Low YUP (800) 10.0 Average DOG (150) 9.5 Low As the capital investment manager you must account for the risks associated with capital budgeting projects before making final recommendations and decisions. The company’s capital investment risk management policy calls for an adjustment of the firm’s average required rate of return by plus/minus 2% if a project’s…arrow_forwardOutlining the capital budgeting process Review the following activities of the capital budgeting process: a. Budget capital investments. b. Project investments’ cash flows. c. Perform post-audits. d. Make investments. e. Use feedback to reassess investments already made. f. Identify potential capital investments. g. Screen/analyze investments using one or more of the methods discussed. Place the activities in sequential order as they occur in the capital budgeting process.arrow_forwardThis homework submission should include all calculations for part (a), completed on the designated tab of the Homework Student Workbook, and a document explaining the implications of your findings for the business or business transaction. After reading this week’s resources, respond to the following:You are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below. Expected Net Cash Flows Year Project X Project Y 0 – $10,000 – $10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Use the Workbook to calculate each project's net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI). Which project or projects should…arrow_forward
- In proper capital budgeting analysis we evaluate incremental __________ cash flows. Select one: a. accounting b. operating c. before-tax d. financingarrow_forwardCapital budgeting techniques aid businesses with investment decision-making. Many approaches can be used, with some being more advanced than others. Describe the payback period approach to capital budgeting. Explain 1 advantage and 1 disadvantage of the technique. Explain why it would be wise for a financial manager to learn advanced capital budgeting techniques.arrow_forwardWhat is the second step of capital budgeting? a. Gathering the money for the investment b. Identifying potential projects c. Getting the accountant involved d. All of the abovearrow_forward
- Please provide as much detail as possible. It must be a detailed explanation for each. What are some of the tax-factor benefits of capital budgeting? a) annual depreciation... how and why is it a benefit? b) interest on loans...why? c) investment tax credits...why?arrow_forwardYou are a financial analyst for the Brittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments: Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects' expected net cash flows are shown in the table below. Use the Homework Student Workbook to calculate each project's net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI). NPVx = NPVy = IRRx = IRRy = TVx = TVy = MIRRx = MIRRy = PVx = PVy = PIx = PIy = 2. Which project or projects should be accepted if they are independent? 3.Which project or projects should be accepted if they are mutually exclusive?arrow_forwardDefining capital investments and the capital budgeting process Match each definition with its capital budgeting method. Methods Accounting rate of return Internal rate of return Net present value Payback Definitions It is only concerned with the time it takes to get cash outflows returned. It considers operating income but not the time value of money in its analyses. Compares the present value of cash outflows to the present value of cash inflows to determine investment worthiness. The true rate of return an investment earns.arrow_forward
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