Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Question
Chapter 19, Problem 20E
To determine
Identify the correct option for the given investment.
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Which of the following items describes a weakness of the internal rate-of-return method?a. The internal rate of return is difficult to calculate and requires a financial calculator or spreadsheet tool such as Excel to calculate efficiently.b. Cash flows from the investment are assumed in the IRR analysis to be reinvested at the internal rate of return.c. The internal rate-of-return calculation ignores time value of money.d. The internal rate-of-return calculation ignores project cash flows occurring after the initial investment is recovered.
Which of the following statements concerning the payback period, is not true?
a.
The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment.incorrect
b.
the payback period involves a simple method
c.
the payback period takes into account the time value of money
d.
the payback period ignores cash flows
An analysis of a proposal by the net present value method indicated that the present value of future cash inflows exceeded the amount to be invested. Which of the following statements best describes the results of this analysis?
A)The proposal is undesirable, and the rate of return expected from the proposal is less than the minimum rate used for the analysis.
B)The proposal is desirable, and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.
C)The proposal is undesirable, and the rate of return expected from the proposal exceeds the minimum rate used for the analysis.
D)The proposal is desirable, and the rate of return expected from the proposal is less than the minimum rate used for the analysis.
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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Similar questions
- When using the NPV method for a particular investment decision, if the present value of all cash Inflows Is greater than the present value of all cash outflows, then _______ . A. the discount rate used was too high B. the investment provides an actual rate of return greater than the discount rate C. the investment provides an actual rate of return equal to the discount rate D. the discount rate is too lowarrow_forwardDiscuss the principal limitations of the cash payback method for evaluating capital investment proposals.arrow_forwardWhy are interest charges not deducted when a projects cash flows are calculated for use in a capital budgeting analysis?arrow_forward
- Which of the following is a disadvantage of the IRR project evaluation method? Select one: a. It does not take into account the time value of money. b. If there are negative cash flows after positive cash flows, there may be zero or multiple internal rates of return. c. It does not make adequate allowance for risk. d. It focuses on accounting profit rather than cash flow as the source of value.arrow_forwardAn analysis of a proposal by the net present value method indicates that the present value of future cash inflows is less than the amount to be invested Which of the following statements best describes the results of this analysis ? The proposal is undesirable , and the rate of return expected from the proposal is less than the minimum rate used for the analysis . The proposal is desirable , and the rate of return expected from the proposal is less than the minimum rate used for the analysis The proposal is desirable , and the rate of return expected from the proposal exceeds the minimum rate used for the analysis . The proposal is undesirable , and the rate of return expected from the proposal exceeds the minimum rate used for the analysis .arrow_forwardThe timing of the cash flows is irrelevant when we calculate the NPV of the project, is this true or false?arrow_forward
- When a capital investment is expected to provide unequal annual cash inflows, the payback period cannot be calculated.True or Falsearrow_forwardWhich of the following statements is correct regarding the payback method? Takes account of differences in size among projects. If a project’s payback is positive, then the project should be accepted because it must have a zero NPV. Ignores cash flows beyond the payback period. Has an objective, market-determined benchmark for making decisions. Directly account for the time value of money.arrow_forwardWhich of the following is true of the cash payback period? a.the longer the payback, the longer the estimated life of the asset b.the longer the payback, the sooner the cash spent on the investment is recovered c.the shorter the payback, the less likely the possibility of obsolescence d.All of these answers are correct.arrow_forward
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