Bundle: Cornerstones of Cost Management, Loose-Leaf Version, 4th + CengageNOWv2, 1 term Printed Access Card
4th Edition
ISBN: 9781337539098
Author: Hansen
Publisher: CENGAGE L
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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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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
One of the shortcoming of the payback method is that it ignores cash flows after the payback period.
True
False
Which of the following is NOT a limitation of the payback rule?
O It does not consider cash flows occurring after the payback period.
O Lacks a decision criterion that is economically based.
O It does not consider the time value of money.
O It is difficult to calculate.
Chapter 19 Solutions
Bundle: Cornerstones of Cost Management, Loose-Leaf Version, 4th + CengageNOWv2, 1 term Printed Access Card
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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- Give an example of a strength and a weakness of the accounting rate of return approach.arrow_forwardRates of returns on annuities cannot be calculated with a formula. True Falsearrow_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_forward
- 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_forwardWhy do the payback period analysis fail to recognize the difference between the present and future value of money?arrow_forwardWhich of the following method is not based on concept of time value of money? A. Discounted payback period B. Accounting rate of return C. Profitability index D. Modified internal rate of returnarrow_forward
- What are some possible negative signals when the product of the accounts receivable turnover ratio is lower (i.e., fewer times)?arrow_forwardWhat is meant by the term abnormal rate of return?arrow_forwardTechnical problems associated with the internal rate of return include: a. the possibility of multiple IRRs, which rarely present practical difficulties b. the assumption that all cash flows are reinvested at the IRR c. neither of the above d. both of the abovearrow_forward
- Which ones identify the disadvantages of the payback rule? A. Very simple and easy to apply. B. Ignores the time value of money. C. The cutoff payback is arbitrary. All of the above. B and C of the above.arrow_forwardWhat are the disadvantages of only accounting for cash income and expenses in basic cost and return analysis?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
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