HORNGREN COST ACCT NON-MAJORS W/ACCESS
17th Edition
ISBN: 9781323703748
Author: Datar
Publisher: Pearson Custom Publishing
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Question
Chapter 21, Problem 21.8Q
To determine
Discounted Cash Flow Method:
Discounted cash flow method refers to the method to evaluate a project after considering the time value of money or discounted cash flows. Under this method all the cash flows during the life of the projects are discounted on the basis of cost of capital.
To explain: Whether the given statement is correct or not.
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Students have asked these similar questions
“The trouble with discounted cash flow methods is that they ignore depreciation.” Do you agree? Explain.
In 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.
“Depreciation expenses have no effect on cash flows and, therefore, are not relevant in capitalexpenditure analysis.” Do you agree? Why or why not?
Chapter 21 Solutions
HORNGREN COST ACCT NON-MAJORS 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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Similar questions
- Relevant cash inflows and outflows in a discounted cash flow analysis are the differences in expected future cash flows as a result of making the investment. The income taxes saved as a result of depreciation deductions are relevant because they decrease cash outflows, but the depreciation itself is a noncash item. True False: Relevant cash inflows and outflows in a discounted cash flow analysis are the differences in past cash flows that resulted from making previous investments. False: neither the income taxes saved as a result of depreciation deductions nor the depreciation itself is considered relevant both B and C none of the abovearrow_forwardExplain how sunk costs and cannibalisation affect the determination of aninvestment’s incremental cash flows.arrow_forwardA disadvantage of using the payback period to compare investment alternatives is that it a. Ignores cash flows beyond the payback period. b. Cannot be used to compare alternatives with different initial investments. c. Cannot be used when cash flows are not uniform. d. Involves the time value of money. e. Cannot be used if a company records depreciation.arrow_forward
- 2)When calculating free cash flows, which of the following statements is NOT true regarding the depreciation? Group of answer choices A)As an accrual, depreciation does not factor into free cash flow calculations. B)Depreciation is an accrual, not a cash flow. C)Depreciation create a tax shield. D)Depreciation is first removed and the subsequently added back in when calculating free cash flows.arrow_forwardWhich of the following phrases best describes the term " actual cash value"? a. market value b. appraised value c. replacement cost less depreciation d. original cost less depreciationarrow_forwardWhat is the difference between unlevered and levered cash flows? What discount rate must be applied when using unlevered cash flows versus levered cash flows? What is lease assignment? What is subletting? Explain at least one main difference between these methods.arrow_forward
- Which one of the following terms best describes the amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal? Fair value Residual value Realizable value Value in usearrow_forwardWhen a depreciable asset is sold, with no proceeds (i.e., sold for zero), then it can be ignored for decision making because there is by definition no impact on cash flow. Group of answer choices True Falsearrow_forwardThe 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_forward
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