Chapter 21, Problem 21.19E

1.

To determine

Capital Budgeting:

It refers to the long term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Payback Method:

Payback Method refers to the method which measure the time period that is required to get an amount invested in a project with some return on it.

Net Present Value (NPV):

It is a method under capital budgeting which includes the calculation of net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

Internal Rate of Return (IRR):

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.

Discounted Payback Period:

It refers to the time period that a project takes to repay the amount invested with some returns attached to it after considering the time value of money or discounted cash flows.

To identify: a. the net present value, b. payback period, c. internal rate of return d. accrual accounting rate of return based on the net initial investment and e accrual accounting rate of return based on average investment.

2.

To determine

To identify: The other effect of disposable value over the values calculated in part 1.