Chapter 24, Problem 7BTN

1.

To determine

To identify: Management tools to evaluate investments.

2.

To determine

To identify: Information needed to use the above tools.

Explanation:

Given below is the information required to use the above management tools:

S Company would require the details of investment made in manufacturing unit and warehousing center.

Details of cash outflows and cash inflows.

Hence, information required to use the above management tools.

3.

To identify: Advantages and disadvantage of management tools listed above.

Explanation:

Given below are the advantages and disadvantages of the above management tools:

Net present value method:

Advantage:

NPV takes into consideration time value of money and helps in determining whether a particular investment will be advantageous for the A Company or not.

Disadvantage:

It is more complicated to understand and is not expressed in terms of percentage

Accounting Rate of Return (ARR):

Advantage:

ARR assists in comparison between different alternatives and thus will help in selecting the alternative with best financial return.

Disadvantage:

The main disadvantage of this method is that it does not consider the time factor and ignores the external factor which affects the profitability of the Company.

Payback period:

Advantage:

It will help the A Company to determine how speedily it can recover its investment.

Disadvantage:

Payback period does not take into consideration time value of money.

Hence, mentioned above are the advantages and disadvantage of listed management tools.

3.

To determine

To identify: Advantages and disadvantage of management tools listed above.