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 3DQ
To determine
State the reason why the time value of money is a major deficiency in the given methods.
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Students have asked these similar questions
Which of the following is a disadvantage of the average rate of return method?
a. fails to consider the time value of money
b. includes the amount of income earned over the entire life of the proposal
c. emphasizes accounting income
d. difficult to use
Which of the following is not true?
GAP analysis Ignores changes in the market value of assets and liabilities.
GAP analysis Ignores time value of money.
GAP analysis is easy to compute and can accurately predicts the exact losses or gains
Gap analysis fails to capture non-interest revenue
One of the shortcoming of the payback method is that it ignores cash flows after the payback period.
True
False
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
- The payback period method has been criticized for not taking the time value of money intoaccount. Could this limitation be overcome? If so, would this method then be preferable to theNPV method?arrow_forwardWhat are the two drawbacks associated with the payback period a. The time value of money is ignored.It ignores cash flows beyond the payback period b. The time value of money is considered.It ignores cash flows beyond the payback period c. The time value of money is considered.It includes cash flows beyond the payback period d. The time value of money is ignored.It includes cash flows beyond the payback periodarrow_forwardWhich of the following statements are true regarding the payback period of an investment? It does not account for the time value of money No objective criteria exists for what is an acceptable payback period Cash flows occurring after the payback period have no impact on the payback computation All of the abovearrow_forward
- What are some possible negative signals when the product of the accounts receivable turnover ratio is lower (i.e., fewer times)?arrow_forwardWhy is it true, in general, that a failure to adjust expected cash flows for expected inflation biases the calculated NPV downward?arrow_forwardThe discounted payback method is better than the regular payback method because The time value of money is considered. The rate of return is allowed to vary. The concept is based on irregular time periods. None of the above.arrow_forward
- Give an example of a strength and a weakness of the accounting rate of return approach.arrow_forwardThe accrual accounting rate-of-return method has a significant weakness for use in making capital budgeting decisions because it does NOT track cash flows and it ignores the time value of money. O True O Falsearrow_forwardWhat are the disadvantages of only accounting for cash income and expenses in basic cost and return analysis?arrow_forward
- The payback period method is inferior to the net present value method because it ________. is difficult to compute Deals with accounting income rather than cash flows Fails to consider cash flows beyond the payback periodarrow_forwardWhich of the following statements is CORRECT? a. The future value of an annuity table is most useful in the short-cut calculation of the future value of uneven cash flows. b. The formula or equation for the calculation of the present value can be used only in even cash flows that are paid or received at regular time intervals and subject to a constant discount rate. c. The present value of an annuity table is most useful in the short-cut calculation of the present value of uneven cash flows. d. The formula or equation for the calculation of the future value can be used also in regular annuity and subject to a fluctuating rate of return.arrow_forwardExplain effect on compounding in respect to time value of money to general situations where compounding is induced by growth, inflation, or deflationarrow_forward
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