Concept explainers
(a)
Cash flow:
Cash flow is the monetary consideration (return or income) received by the business for its long-term capital investment.
To determine: The (1) net income, and (2) net annual cash flows for the commuter service.
(b)
Cash payback method:
Cash payback period is the expected time period which is required to recover the cost of investment. It is one of the capital investment method used by the management to evaluate the long-term investment (fixed assets) of the business.
In simple, the cash payback period is computed as follows:
The annual
The annual rate of return is the amount of income which is earned over the life of the investment. It is used to measure the annual income as a percent of the annual investment of the business, and it is also known as the accounting rate of return.
The annual rate of return is computed as follows:
To compute: (1) The cash payback period, and (2) the annual rate of return for given proposal.
(c)
Net present value method is the method which is used to compare the initial
To determine: The net present value for the given proposal.
(d)
To discuss: Whether the project is acceptable or not.
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