HORNGRENS COST ACCOUNTING W/ACCESS
16th Edition
ISBN: 9781323687604
Author: Datar
Publisher: PEARSON
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Chapter 21, Problem 21.27E
Payback and
- 1. Because the company’s cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects.
Required
- a. What are the benefits and limitations of using the payback method to choose between projects?
- b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Andrews choose?
- 2. Bart thinks that projects should be selected based on their NPVs. Assume all
cash flows occur at the end of the year except for initial investment amounts. Calculate the NPV for each project. Ignore income taxes. - 3. Which projects, if any, would you recommend funding? Briefly explain why.
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Payback and NPV methods, no income taxes. (CMA, adapted) Andrews Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Lori Bart, staff analyst at Andrews, is preparing an analysis of the three projects under consideration by Corey Andrews, the company’s owner.
Required:
Because the company’s cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects.
What are the benefits and limitations of using the payback method to choose between projects?
Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Andrews choose?
Bart thinks that projects should be selected based on their NPVs. Assume all cash flows occur at the end of the year except for initial investment amounts. Calculate the NPV for each project. Ignore income taxes.
Which projects,…
Halls Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Lisa Bickerson, staff analyst at Halls, is preparing an analysis of the three projects unde
consideration by Conan Halls, the company's owner.
(Click the icon to view the data for the three projects.)
(Click the icon to view the Future Value of $1 factors.)
(Click the icon to view the Future Value of Annuity of $1 factors.)
(Click the icon to view the Present Value of $1 factors.)
(Click the icon to view the Present Value of Annuity of $1 factors.)
Read the requirements.
Requirement 1. Because the company's cash is limited, Halls thinks the payback method should be used to choose between the capital budgeting projects.
Calculate the payback period for each of the three projects. Ignore income taxes. (Round your answers to two decimal places.)
i
Data Table
Project A
years
Project B
years
Project C
years
Project A…
The Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of a special equipment for the Materials Handling Department. The projected annual operating revenues and expenses are as follows:
1. How much is the after tax cash flows of Project 1?
2. How much is the net benefit of investing in Project 2?
Chapter 21 Solutions
HORNGRENS COST ACCOUNTING W/ACCESS
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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