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AccountingManagerial Accounting: The Cornerstone of Business Decision-Making7th Edition

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Chapter 12, Problem 36E
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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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Problem 5DQ
Problem 6DQ
Problem 7DQ
Problem 8DQ
Problem 9DQ
Problem 10DQ
Problem 11DQ
Problem 12DQ
Problem 13DQ
Problem 14DQ
Problem 15DQ
Problem 1MCQ
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Problem 3MCQ
Problem 4MCQ
Problem 5MCQ
Problem 6MCQ
Problem 7MCQ
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Problem 9MCQ
Problem 10MCQ
Problem 11MCQ
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Problem 16MCQ
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Problem 20MCQ
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Problem 22BEA
Problem 23BEA
Problem 24BEA
Problem 25BEA
Problem 26BEB
Problem 27BEB
Problem 28BEB
Problem 29BEB
Problem 30BEB
Problem 31E
Problem 32E
Problem 33E
Problem 34E
Problem 35E
Problem 36E
Problem 37E
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Problem 39E
Problem 40E
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Problem 44P
Problem 45P
Problem 46P
Problem 47P
Problem 48P
Problem 49P
Problem 50P
Problem 51P
Problem 52P
Problem 53P
Problem 54C
Problem 55C
Problem 1MTC
Problem 2MTC
Problem 3MTC
Problem 4MTC
Problem 5MTC
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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return

Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $384,000. The NC equipment will last 5 years with no expected salvage value. The expected after-tax cash flows associated with the project follow:

Chapter 12, Problem 36E, Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return Blaylock Company

Required:

Compute the payback period for the NC equipment.

Compute the NC equipment’s ARR. Round the percentage to one decimal place.

Compute the investment’s NPV, assuming a required rate of return of 10%.

Compute the investment’s IRR.

1.

To determine

Find out the payback period for NC equipment.

Explanation

Payback Period:

The time taken by an investment to recover its original value is known as payback period. It is calculated by dividing the original amount of investment by annual cash flow from the investment.

Use the following formula to calculate payback period:

Payback period=Original investmentAverage annual cashflow

Substitute $384,000 for original investment and $150,0001 for average annual investment in the above formula.

Payback period=$384,000$150,000=2

2.

To determine

Find out accounting rate of return (ARR) of NC equipment.

3.

To determine

Find out the NPV of the investment using required rate of return as 10%.

4.

To determine

Find out the IRR of the investment.

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Ch-12 P-1DQCh-12 P-2DQCh-12 P-3DQCh-12 P-4DQCh-12 P-5DQCh-12 P-6DQCh-12 P-7DQCh-12 P-8DQCh-12 P-9DQCh-12 P-10DQ
Ch-12 P-11DQCh-12 P-12DQCh-12 P-13DQCh-12 P-14DQCh-12 P-15DQCh-12 P-1MCQCh-12 P-2MCQCh-12 P-3MCQCh-12 P-4MCQCh-12 P-5MCQCh-12 P-6MCQCh-12 P-7MCQCh-12 P-8MCQCh-12 P-9MCQCh-12 P-10MCQCh-12 P-11MCQCh-12 P-12MCQCh-12 P-13MCQCh-12 P-14MCQCh-12 P-15MCQCh-12 P-16MCQCh-12 P-17MCQCh-12 P-18MCQCh-12 P-19MCQCh-12 P-20MCQCh-12 P-21BEACh-12 P-22BEACh-12 P-23BEACh-12 P-24BEACh-12 P-25BEACh-12 P-26BEBCh-12 P-27BEBCh-12 P-28BEBCh-12 P-29BEBCh-12 P-30BEBCh-12 P-31ECh-12 P-32ECh-12 P-33ECh-12 P-34ECh-12 P-35ECh-12 P-36ECh-12 P-37ECh-12 P-38ECh-12 P-39ECh-12 P-40ECh-12 P-41PCh-12 P-42PCh-12 P-43PCh-12 P-44PCh-12 P-45PCh-12 P-46PCh-12 P-47PCh-12 P-48PCh-12 P-49PCh-12 P-50PCh-12 P-51PCh-12 P-52PCh-12 P-53PCh-12 P-54CCh-12 P-55CCh-12 P-1MTCCh-12 P-2MTCCh-12 P-3MTCCh-12 P-4MTCCh-12 P-5MTC

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