Loose Leaf For Introduction To Managerial Accounting
8th Edition
ISBN: 9781260190175
Author: Brewer Professor, Peter C.; Garrison, Ray H; Noreen, Eric
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 12, Problem 8F15
To determine
Simple
It refers to the rate by which the companies’ estimates that how much an organisation can expect to make off of a capital investment each year. By computing this, the company can quickly recognize that the plan is worth its time and money or not. It is computed by the following formula:
Project’s simple rate of return of each five years.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
ThreeRivers Corp. is considering the purchase of a new piece of equipment with a life of 12 years. The internal rate of return of the project is 20%. ThreeRivers has a required rate of return (hurdle rate) of 17%.
The project would have:
Multiple Choice
a net present value greater than zero.
a payback period more than 12 years.
a net present value of zero.
an accounting rate of return greater than 17%.
ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NP of the assembler if the required rate of return is 12%. Show calculation. Would you accept/reject a project based on NPV decision criteria? Why?
Based on NPV calculated in part A, determine Profitability Index (PI). Show calculation. Would you accept/reject a project based on PI decision criteria? Why?
A company is considering an investment that will require a cost outlay of $5,000 per year for the first five years and an extra $2000 at the beginning of Year 8. At the end of the project, the salvage value will be $15,000. The project will yield returns of $8500 at the end of each year from Year 4 to Year 10. There are no returns after Year 10. Providing a 21% rate of return, what is the NPV? If your answer is negative, be sure to place a (-) sign before the number.
Chapter 12 Solutions
Loose Leaf For Introduction To Managerial Accounting
Ch. 12.A - Basic Present Value Concepts Annual cash inflows...Ch. 12.A - Basic Present value Concepts Julie has just...Ch. 12.A - Prob. 3ECh. 12.A - Prob. 4ECh. 12.A - Basic Present Value Concepts The Atlantic Medical...Ch. 12.A - Prob. 6ECh. 12 - What is the difference between capital budgeting...Ch. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - Prob. 4Q
Ch. 12 - Why are discounted cash flow methods of making...Ch. 12 - Prob. 6QCh. 12 - Identify two simplifying assumptions associated...Ch. 12 - Prob. 8QCh. 12 - Prob. 9QCh. 12 - Prob. 10QCh. 12 - Prob. 11QCh. 12 - Prob. 12QCh. 12 - How is the project profitability index computed,...Ch. 12 - Prob. 14QCh. 12 - Prob. 15QCh. 12 - Prob. 1AECh. 12 - The Excel worksheet form that appears below is to...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 3F15Ch. 12 - Prob. 4F15Ch. 12 - Prob. 5F15Ch. 12 - Prob. 6F15Ch. 12 - Prob. 7F15Ch. 12 - Prob. 8F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 11F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Prob. 13F15Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Cardinal Company is considering a five-year...Ch. 12 - Payback Method The management of Unter...Ch. 12 - Net Present Value Analysis The management of...Ch. 12 - Internal Rate of Return Wendell’s Donut Shoppe is...Ch. 12 - Uncertain Future Cash Flows Lukow Products is...Ch. 12 - Prob. 5ECh. 12 - Simple Rate of Return Method The management of...Ch. 12 - Prob. 7ECh. 12 - Payback Period and Simple Rate of Return Nicks...Ch. 12 - Prob. 9ECh. 12 - Prob. 10ECh. 12 - Preference Ranking of Investment Projects Oxford...Ch. 12 - Prob. 12ECh. 12 - Payback Period and Simple Rate of Return...Ch. 12 - Comparison of Projects Using Net Present Value...Ch. 12 - Internal Rate of Return and Net Present Value...Ch. 12 - Net Present Value Analysis Windhoek Mines, Ltd.,...Ch. 12 - Net Present Value Analysis; Internal Rate of...Ch. 12 - Net Present Value Analysis Oakmont Company has an...Ch. 12 - Simple Rate of Return; Payback Period Paul Swanson...Ch. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - Comprehensive Problem - Lou Barlow, a divisional...Ch. 12 - Prob. 24PCh. 12 - Prob. 25PCh. 12 - Prob. 26PCh. 12 - Net Present Value Analysis In five years, Kent...Ch. 12 - Prob. 28PCh. 12 - Prob. 29P
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
- The ATS corp. has recently evaluated a proposal to invest in cost-reducing production technology. According to the evaluation, the project would require an initial investment of 18,000 and would provide equal annual cost savings for five years. Based on a 10 percent discount rate, the project generates a net present value of 1,788. The project is not expected to have any salvage at the end of its five-year life. What is the project’s expected internal rate of return?arrow_forwardSierra Company is considering a long-term investment project called ZIP. ZIP will require an investment of $140,040. It will have a useful life of four years and no salvage value. Annual cash inflows would increase by $93,360, and annual cash outflows would increase by $47,847. The company's required rate of return is 12%. Calculate the internal rate of return on this project. (Round answer to 1 decimal place, e.g. 12.4%.) Internal rate of return % Identify whether the project should be accepted or rejected. The project should bearrow_forwardMagsaysay Company is evaluating an investment that would have an eight-year life and would require a P300,000 purchase of equipment which has no salvage value. The project has the following additional information: Sales, P500,000; Cash Variable Expenses, P200,000; Fixed cash expenses, P150,000; Depreciation expense, P37,500. If the company's required rate of return is 10%, what is the payback period of the investment? a. 3 years b. 2 years c. 2.5 years d. 2.67 yearsarrow_forward
- Cadillac Company is evaluating an investment that would have an eight-year life and would require a P300,000 purchase of equipment which has no salvage value. The project has the following additional information : Sales, P500,000; Cash Variable Expenses, P200,000; Fixed cash expenses, P150,000; Depreciation expense, P37,500. If the company's required rate of return is 10%, what is the payback period of the investment. A. 3 years B. 2 years C. 2.5 years D. 2.67 yearsarrow_forwardRamson Corporation is considering purchasing a machine that would cost $609,580 and have a useful life of 9 years. The machine would reduce cash operating costs by $105,100 per year. The machine would have a salvage value of $107,340 at the end of the project. (Ignore income taxes.) Required: a. Compute the payback period for the machine. (Round your answer to 2 decimal places.) b. Compute the simple rate of return for the machine. (Round your intermediate calculations to nearest whole dollar and your final answer to 2 decimal places.) a. Payback period 5.80 years b. Simple rate of return 8.09 %arrow_forwardYou are faced with a decision on an investment proposal. Specifically, the estimated additional income from the investment is $125,000 per year; the investment cost is $400,000; and the first year estimated expense of $20,000 and will increase a rate of 5% per year. Assume an 8-year analysis period, no salvage value, and MARR = 15% per year. a. Calculate the PW and FW of this proposal? b. What is the ERR ( E=MARR) of this proposal? c. What is the Simple and Discounted payback? (Upload the picture of your complete solutions including the correct cash flow diagram and your conclusion.)arrow_forward
- The management of Basler Corporation is considering the purchase of a machine that would cost $440,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $128,000 per year. The company requires a minimum pretax return of 12% on all investment projects. Required: Determine the net present value of the project. Use the factor of 3.605 for the discount rate of 12% as present value of annuity in 5 years.arrow_forwardBrown Company is considering purchasing a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $50,000. The machine would provide annual cost savings of $75,000. The company requires a rate of return of 11% on all investment projects. What is the net present value of the proposed project? (Select the answer that is closest to your calculations.) Present value tables are provided below. Present Value of $1 Table (Exhibit 11B-1) (Partial table) Periods 4% 5% 6% 7% 8% 9% 10% 11 12% 13% 14% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 1 2. 4 5. 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.760 0.711 0.665 0.623…arrow_forwardCardinal Company is considering a project that would require a $2.915.000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $300.000. The company's discount rate is 12%. The project would provide net operating income each year as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out -ofF-pocket Costs $2,746,000 1,126,000 1,628, ర00 Depreciation Total fixed expense5 $615,000 523, 000 1,138,000 Net operating income $ 482,000 Required: What is the project's simple rate of return for each of the five years? (Round your answer to 2 decimal places.) Simple rate of returnarrow_forward
- An electronic circuit board manufacturer is considering six mutually exclusive cost-reduction projects for its PC-board manufacturing plant. All have lives of 10 years and zero salvage value. The required investment, the estimated after-tax reduction in annual disbursements, and the gross rate of return arc given for each alternative in the following table: llte rate of return on incremental investments is given for each project as follows: Which project would you select according to the rate of return on incremental investment if it is stated that the MARR is 15%?arrow_forwardBowser Company's required rate of return is 14%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently. (Ignore income taxes in this problem.) Required: Machine A will cost $20,000 and will have a useful life of 15 years. Its salvage value will be $1,800, and cost savings are projected at $4,000 per year. Calculate the machine's net present value. How much should Bowser Company be willing to pay for Machine B if the machine promises annual cash inflows of $6,000 per year for eight years? Machine C has a projected life of ten years. What is the machine's internal rate of return if it costs $40,000 and will save 7,000 annually in cash operating costs? Would you recommend to Bowser Company to purchase Machine C? Explain.arrow_forward[The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $2,739,000 1, 100,000 1,639,000 $641,000 578,000 1,219,000 Net operating income $4 420,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. 2. What are the project's annual net cash inflows? Annual net cash inflowarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
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