Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
16th Edition
ISBN: 9780134642468
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Question
Chapter 21, Problem 21.17MCQ
To determine
It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with lower cost of capital and rejection of project with higher cost of capital.
To identify: The correct option.
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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.
Technical 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 above
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 21 Solutions
Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
Ch. 21 - Capital budgeting has the same focus as accrual...Ch. 21 - List and briefly describe each of the five stages...Ch. 21 - Prob. 21.3QCh. 21 - Only quantitative outcomes are relevant in capital...Ch. 21 - How can sensitivity analysis be incorporated in...Ch. 21 - Prob. 21.6QCh. 21 - Describe the accrual accounting rate-of-return...Ch. 21 - Prob. 21.8QCh. 21 - Lets be more practical. DCF is not the gospel....Ch. 21 - All overhead costs are relevant in NPV analysis....
Ch. 21 - Prob. 21.11QCh. 21 - Distinguish different categories of cash flows to...Ch. 21 - Prob. 21.13QCh. 21 - How can capital budgeting tools assist in...Ch. 21 - Distinguish the nominal rate of return from the...Ch. 21 - A company should accept for investment all...Ch. 21 - Prob. 21.17MCQCh. 21 - Which of the following statements is true if the...Ch. 21 - Prob. 21.19MCQCh. 21 - Nicks Enterprises has purchased a new machine tool...Ch. 21 - Prob. 21.21ECh. 21 - Capital budgeting methods, no income taxes. Yummy...Ch. 21 - Capital budgeting methods, no income taxes. City...Ch. 21 - Prob. 21.24ECh. 21 - Capital budgeting with uneven cash flows, no...Ch. 21 - Comparison of projects, no income taxes. (CMA,...Ch. 21 - Payback and NPV methods, no income taxes. (CMA,...Ch. 21 - DCF, accrual accounting rate of return, working...Ch. 21 - Prob. 21.29ECh. 21 - Prob. 21.30ECh. 21 - Project choice, taxes. Klein Dermatology is...Ch. 21 - Prob. 21.32ECh. 21 - Selling a plant, income taxes. (CMA, adapted) The...Ch. 21 - Prob. 21.36PCh. 21 - NPV and AARR, goal-congruence issues. Liam...Ch. 21 - Payback methods, even and uneven cash flows. Sage...Ch. 21 - Replacement of a machine, income taxes,...Ch. 21 - Recognizing cash flows for capital investment...Ch. 21 - NPV, inflation and taxes. Fancy Foods is...Ch. 21 - NPV of information system, income taxes. Saina...
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- One of the shortcoming of the payback method is that it ignores cash flows after the payback period. True Falsearrow_forwardAll of the following are weaknesses of the payback period EXCEPT Select one: a. only an implicit consideration of the timing of cash flows. b. the difficulty of specifying the appropriate payback period. c. a disregard for cash flows after the payback period. d. that it uses cash flows, not accounting projects.arrow_forwardIn the discounted cashflow method, the discount rate is used for the following reasons EXCEPTa. it removes the timing differences of cashflows.b. it serves as the required rate of return of the asset being valued.c. it removes the expected riskiness of differing assetsd. it equalizes cash inflows to cash outflows so that the value would equal to the market value.arrow_forward
- Explain two (2) disadvantages of discounted cashflow analysis.arrow_forwardAssuming that we are not able to accurately predict cash flows , generally decreased risk is thought to A. Increase interest rates B. Increase present value C. Decrease present value D. Increases cash flowsarrow_forwardFinancial planning models tends to focus too much on accounting relationships and ignores cash flow size, risk of cash flows and timing of cash flows. True or Falsearrow_forward
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