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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Present value index

Montana Grill has computed the net present value for capital expenditures for the Billingsand Great Falls locations using the net present value method. Relevant data related to the Computation are as follows:

a. Determine the present value index for each proposal. Round to two decimal places.

b. If Montana Grill can fund only one location, which location should be funded?

To determine

Concept Introduction:

Capital budgeting is a technique to plan long term investment of funds in long term activities whose benefit released for several years.

Example: - Purchase of machineries, purchase of building for business purpose, setting of factories etc.

Net Present value refers to the difference between the present value of inflows and the present value of outflows associated with the projects.

Profitability index: - Profitability index or Present value index is the ratio between Present Value of Inflow and Initial Cash Outflow associated with Project.

To Calculate:-

Present Value Index.

Explanation

Profitability Index (Present value of Indices)

Present Value Indices = Present Value of Inflow /Present Value of Outflow

    ParticularBillingsGreat Falls
To determine

Concept Introduction:

Capital budgeting is a technique to plan long term investment of funds in long term activities whose benefit released for several years.

Example: - Purchase of machineries, purchase of building for business purpose, setting of factories etc.

Net Present value refers to the difference between the present value of inflows and the present value of outflows associated with the projects.

Profitability index: - Profitability index or Present value index is the ratio between Present Value of Inflow and Initial Cash Outflow associated with Project.

To Recommend

Which Project should be selected for Management.

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