Concept explainers
Concept Introduction:
Payback Period:
Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual
NPV:
To Indicate:
Why the production house would like to use the cash payback period over the net present value method
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Survey of Accounting (Accounting I)
- Are the revenues from the goods and services produced in the new facility, the expected future cash inflows in the investment category?arrow_forwardWhich of the following is an advantage of using the payback period method for project selection? The payback period method considers the time value of money The payback period method considers accounting income The payback period method shows when funds will be available for reinvestment The payback period method ignores the time value of moneyarrow_forwardCalculate the terminal cash flow of the project Taking into consideration all the information given, determine the Net Present Value of the project and advice the company on whether to invest in the new line of product. Why should the cost of capital used in capital budgeting be calculated as a weighted average of the capital component rather than the cost of the specific financing used to fund a particular project?arrow_forward
- Explain what a discounted cash flow method of making capital budgeting decisions is. Why are discounted cash flow methods superior to other methods? What are the risks related to using discounted cash flow methods? What a project profitability index? What does it measure? Why is it used? What is the primary criticism of the payback and simple rate of return methods of making capital budget decisions? What are the benefits in using these methods? Should companies continue to use these methods? Why or why not? What role, if any, should qualitative factors play in capital budgeting decisions? Explain your reasoning for your answer Discuss some of the major benefits to be gained from budgeting.arrow_forwardCapital budgeting is the ________. A. process of planning for investments in long−term assets B. process of evaluating the profitability of a business C. process of making pricing decisions for products D. preparation of the budget for operating expensesarrow_forwardImagine that you have been tasked with evaluating the future investment of equipment for a company. To make an effective decision you will likely consider various capital budgeting techniques such as the cash payback technique, internal rate of return (IRR), annual rate of return (ARR), and the net present value (NPR) methods. Discuss which method you are most likely to use to evaluate future investments and which you are least likely to use.arrow_forward
- . Qualitative considerations that may influence capital investment analysis include the investment proposal's impact on all of the following except ________. product quality manufacturing flexibility employee morale income taxes The process by which management allocates funds among competing capital investment proposals is called ________. competitive analysis fund analysis capital rationing None of these choices are correct. With capital rationing, alternative proposals are initially screened by establishing minimum standards and applying which of the following methods? Cash payback and net present value methods Net present value and internal rate of return methods Cash payback and average rate of return methods Net present value and average rate of return methodsarrow_forwardAdjusted present value technique is a technique that A) adjusts conventional present value for nonconstant cash inflows B) suggests separating tax savings from interest in the cash flows within the valuation process C) is used to value a project for a multinational corporation D) simply adjusts the conventional present value for nominal interestarrow_forwardHow does depreciation enter into the calculation of operating cash inflows? Explain theu underlyinglogic of such calculation process. Why is it important to evaluate capital budgetingp projectson the basis of incremental cash flows?arrow_forward
- (a). Calculate the length of Rowet’s cash conversion cycle and discuss it significance to the company.(b). Using the information given, assess whether Rowett should accept the factoring service offeredby Powell. What use should the company make of any finance provided by the factor? Please help me with quastion A just (a). Calculate the length of Rowet’s cash conversion cycle and discuss it significance to the company.arrow_forwardDiscuss the principal objections to the use of the cash payback method for evaluating capital investment proposals.arrow_forwardThe internal rate of return is the: discount rate that makes present value of cash inflows equal to present value of cash outflows. discount rate that causes a project's after-tax income to equal zero. discount rate that results in a zero net accounting return. rate of return required by the project's investors.arrow_forward
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