BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 26, Problem 26.12EX
Textbook Problem

Present value index

 Dip N’ Dunk Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows:

  Fort Collins Boulder
Total present value of net cash flow $607,600 $624,000
Less amount to be invested 620,000 600.000
Net present value $(12,400) $ 24,000

 a.    Determine the present value index for each proposal.

b.    Which location does your analysis support? Explain

Expert Solution

a.

To determine

Present value index:

Present value index is a technique, which is used to rank the proposals of the business.  It is used by the management when the business has more investment proposals, and limited fund.

The present value index is computed as follows:

Present value index =Total present value of net cash flowAmount to be invested

To determine:  The present value index for each proposal.

Explanation of Solution

Calculate the present value index for Fort Collins:

Present value index for Fort Collins = Total presest value of cash flowAmount to be invested=$607,600$620,000=0.98

Hence, the present value index for Fort Collins is 0

Expert Solution

b.

To determine

To analysis: The investment location which is favor to investment.

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Chapter 26 Solutions

Accounting
Show all chapter solutions
Ch. 26 - What are the major advantages of leasing a fixed...Ch. 26 - Give an example of a qualitative factor that...Ch. 26 - How are investments in sustainability justified?Ch. 26 - Average rate of return Determine the average rate...Ch. 26 - Average rate of return Determine the average rate...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Net present value A project has estimated annual...Ch. 26 - Net present value A project has estimated annual...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Internal rate of return A project is estimated to...Ch. 26 - Net present valueunequal lives Project A requires...Ch. 26 - Net present valueunequal lives Project 1 requires...Ch. 26 - Average rate of return The following data are...Ch. 26 - Average rate of returncost savings Midwest...Ch. 26 - Average rate of returnnew product Micro Tek Inc....Ch. 26 - Calculate cash flows Natures Way Inc. is planning...Ch. 26 - Cash payback period for a service company Prime...Ch. 26 - Cash payback method Lily Products Company is...Ch. 26 - Net present value method The following data are...Ch. 26 - Net present value method for a service company AM...Ch. 26 - Net present value methodannuity for a service...Ch. 26 - Net present value methodannuity Briggs Excavation...Ch. 26 - Net present value method for a service company...Ch. 26 - Present value index Dip N Dunk Doughnuts has...Ch. 26 - Net present value method and present value index...Ch. 26 - Average rate of return, cash payback period, net...Ch. 26 - Cash payback period, net present value analysis,...Ch. 26 - Internal rate of return method The internal rate...Ch. 26 - Internal rate of return method for a service...Ch. 26 - Internal rate of return methodtwo projects Munch N...Ch. 26 - Net present value method and internal rate of...Ch. 26 - Identify error in capital investment analysis...Ch. 26 - Net present valueunequal lives Bunker Hill Mining...Ch. 26 - Net present valueunequal lives Daisys Creamery...Ch. 26 - Sustainable energy capital investment analysis...Ch. 26 - Sustainable product capital investment analysis...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Cash payback period, net present value method, and...Ch. 26 - Net present value method, present value index, and...Ch. 26 - Net present value method, internal rate of return...Ch. 26 - Alternative capital investments The investment...Ch. 26 - Capital rationing decision for a service company...Ch. 26 - Average rate of return method, net present value...Ch. 26 - Cash payback period, net present value method, and...Ch. 26 - Net present value method, present value index, and...Ch. 26 - Net present value method, internal rate of return...Ch. 26 - Alternative capital investments The investment...Ch. 26 - Capital rationing decision for a service company...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Communication Global Electronics Inc. invested...Ch. 26 - Personal investment analysis for a service company...Ch. 26 - Qualitative issues in investment analysis The...Ch. 26 - Net present value method for a service company...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
Differentiate between dealer markets and stock markets that have a physical location.

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

Why are actual overhead rates seldom used in practice?

Managerial Accounting: The Cornerstone of Business Decision-Making

Describe marketing uses of branding

MKTG 12:STUDENT ED.-TEXT

What information is included in an employees individual earnings record?

College Accounting (Book Only): A Career Approach

PRESENT VALUE What is the present value of a security that will pay 5,000 in 20 years if securities of equal ri...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

How often must an employer file Form 941?

PAYROLL ACCT.,2019 ED.(LL)-TEXT

What is a focused value stream?

Cornerstones of Cost Management (Cornerstones Series)