Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 19, Problem 12E
Refer to Exercise 19.11.
- 1. Compute the payback period for each project. Assume that the manager of the clinic accepts only projects with a payback period of three years or less. Offer some reasons why this may be a rational strategy even though the
NPV computed in Exercise 19.11 may indicate otherwise. - 2. Compute the accounting
rate of return for each project.
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What is the average return per year for a project that has an initial investment of $75,000 with an average return of $12,000 per year over 10 years?
a) $1,080
b) $10,800
c) $4,500
d) $11,000
e) $3,200
Based on previous answer, what is the Return on investment (ROI) of this project?
a) 8.5
b) 6
c) 4
d) 5.5
e) 3
Which of the following best describes a cost-bound project?
a) A project that is constrained by a hard deadline in which the delivery timing is as important as the delivery itself
b) A project that is constrained by safety standards in which the safety aspect of the project is as important as the delivery itself
c) A project that is constrained by a hard budget in which the cost of the project is as important as the delivery itself
d) A and C
e) All of the above
What would be the discount factor at year 3 of a 4-year project, if the discount rate is 6%?
a) 0.78
b) 0.84
c) 0.89
d) 0.96
e) None of the above
Please answer the following questions in detail, provide examples whenever applicable, provide in-text citations.
(TABLE IMAGE ATTACHED)
What is the payback period on each of the above projects?
Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept?
If you use a cutoff period of three years, which projects would you accept?
If the opportunity cost of capital is 10%, which projects have positive NPVs?
If a firm uses a single cutoff period for all projects, it is likely to accept too many short-lived projects.” True or false?
If the firm uses the discounted-payback rule, will it accept any negative-NPV projects? Will it turn down any positive NPV projects?
Your CEO insists that all projects should have a payback period of four or less. As a result attractive long lived projects are being turned down. The CEO is willing to switch to a discounted payback with same four year cutoff period. Would this be an improvement and which method you would suggest or emphasize more?
Chapter 19 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 19 - Explain the difference between independent...Ch. 19 - Explain why the timing and quantity of cash flows...Ch. 19 - Prob. 3DQCh. 19 - Prob. 4DQCh. 19 - What is the accounting rate of return?Ch. 19 - What is the cost of capital? What role does it...Ch. 19 - Prob. 7DQCh. 19 - Explain how the NPV is used to determine whether a...Ch. 19 - Explain why NPV is generally preferred over IRR...Ch. 19 - Prob. 10DQ
Ch. 19 - Prob. 11DQCh. 19 - Prob. 12DQCh. 19 - Prob. 13DQCh. 19 - Prob. 14DQCh. 19 - Prob. 15DQCh. 19 - Jan Booth is considering investing in either a...Ch. 19 - Prob. 2CECh. 19 - Carsen Sorensen, controller of Thayn Company, just...Ch. 19 - Manzer Enterprises is considering two independent...Ch. 19 - Keating Hospital is considering two different...Ch. 19 - Prob. 6CECh. 19 - Prob. 7ECh. 19 - Prob. 8ECh. 19 - Each of the following scenarios is independent....Ch. 19 - Roberts Company is considering an investment in...Ch. 19 - NPV A clinic is considering the possibility of two...Ch. 19 - Refer to Exercise 19.11. 1. Compute the payback...Ch. 19 - Buena Vision Clinic is considering an investment...Ch. 19 - Consider each of the following independent cases....Ch. 19 - Gina Ripley, president of Dearing Company, is...Ch. 19 - Covington Pharmacies has decided to automate its...Ch. 19 - Postman Company is considering two independent...Ch. 19 - Prob. 18ECh. 19 - Prob. 19ECh. 19 - Prob. 20ECh. 19 - Assume there are two competing projects, X and Y....Ch. 19 - Prob. 22ECh. 19 - Assume that an investment of 100,000 produces a...Ch. 19 - Prob. 24PCh. 19 - Prob. 25PCh. 19 - Prob. 26PCh. 19 - Kent Tessman, manager of a Dairy Products...Ch. 19 - Friedman Company is considering installing a new...Ch. 19 - Okmulgee Hospital (a large metropolitan for-profit...Ch. 19 - Mallette Manufacturing, Inc., produces washing...Ch. 19 - Jonfran Company manufactures three different...Ch. 19 - Prob. 32P
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