2 Semester Cengage Now, Warren Accounting
26th Edition
ISBN: 9781305662308
Author: WARREN
Publisher: Cengage
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Chapter 26, Problem 5DQ
To determine
Cash payback method:
Cash payback period is the expected time period which is required to recover the cost of investment. It is one of the capital investment method used by the management to evaluate the long-term investment (fixed assets) of the business.
In simple, the cash payback period is computed as follows:
To determine: The reason for which the cash pay back method understates the attractiveness of a project with a large residual value.
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Chapter 26 Solutions
2 Semester Cengage Now, Warren Accounting
Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Prob. 3DQCh. 26 - Your boss has suggested that a one-year payback...Ch. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - A net present value analysis used to evaluate a...Ch. 26 - Two projects haw an identical net present value of...Ch. 26 - Prob. 9DQCh. 26 - What are the major disadvantages of the use of the...
Ch. 26 - Prob. 11DQCh. 26 - Give an example of a qualitative factor that...Ch. 26 - Prob. 26.1APECh. 26 - Average rate of return Determine the average rate...Ch. 26 - Prob. 26.2APECh. 26 - Cash payback period A project has estimated annual...Ch. 26 - Prob. 26.3APECh. 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 - Prob. 26.5APECh. 26 - Prob. 26.5BPECh. 26 - Average rate of return The following data are...Ch. 26 - Average rate of returncost savings Midwest...Ch. 26 - Average rate of return-new product Galactic Inc....Ch. 26 - Prob. 26.4EXCh. 26 - Prob. 26.5EXCh. 26 - Cash payback method Lily Products Company is...Ch. 26 - Prob. 26.7EXCh. 26 - Prob. 26.8EXCh. 26 - Prob. 26.9EXCh. 26 - Prob. 26.10EXCh. 26 - Prob. 26.11EXCh. 26 - Prob. 26.12EXCh. 26 - Net present value method and present value index...Ch. 26 - Prob. 26.14EXCh. 26 - Cash payback period, net present value analysis,...Ch. 26 - Internal rate of return method The internal rate...Ch. 26 - Prob. 26.17EXCh. 26 - Internal rate of return methodtwo projects Munch N...Ch. 26 - Prob. 26.19EXCh. 26 - Prob. 26.20EXCh. 26 - Prob. 26.21EXCh. 26 - Prob. 26.22EXCh. 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 - Prob. 26.4APRCh. 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 - Prob. 26.2BPRCh. 26 - Prob. 26.3BPRCh. 26 - Net present value method, internal rate of return...Ch. 26 - Prob. 26.5BPRCh. 26 - Capital rationing decision for a service company...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Prob. 26.2CPCh. 26 - Global Electronics Inc. invested 1,000,000 to...Ch. 26 - Qualitative issues in investment analysis The...Ch. 26 - Prob. 26.5CP
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- What are the major disadvantages of the use of the internal rate of return method of analyzing capital investment proposals?arrow_forwardHow does the size of the initial investment affect the internal rate of return on the net present value models?arrow_forwardWhat are the principal objections to the use of the average rate of return method in evaluating capital investment proposals? Discuss the principal limitations of the cash payback method for evaluating capital investment proposals. What information does the cash payback period ignore that is included by the net present value method? Why would the cash payback method understate the value of a project with a large residual value? What are the major disadvantages of the use of the net present value method of analyzing capital investment proposals? Give examples of qualitative factors that should be considered in a capital investment analysis related to acquiring automated factory equipment.arrow_forward
- How can the working-capital requirements significantly reduce a project's profitability or rate of return?arrow_forwardWhy do we need to predict how certain costs will behave in response to change activity in project cash-flow analysis?arrow_forwardWhich of the following statements is true about the internal rate of return? a. It is the interest rate that sets a project's net present value at zero. b. It is the minimal acceptable interest rate on an investment. c. It is the difference between the present value of the cash inflows and outflows associated with a project. d. It is the difference between the present value of a cash outflow and the depreciation associated with an asset.arrow_forward
- Which are problems of the payback criterion? Check all that apply: It ignores cash flows after the cutoff date. It ignores the time value of money. It doesn't show the value created by a project. It doesn't fully reflect the risk of a project. It uses an arbitrary cutoff value. It is difficult to calculate.arrow_forwardHow can we use the internal rate of return to evaluate whether we should pursue a specific project? Should we pursue a project when the cost of capital is higher than the internal rate of return?arrow_forwardWhat is the value added by the design of the financing package? How does it alter both the return and the risk of the new project? Is it effective at reducing the project’s operating risks?arrow_forward
- Why are NPV, BCR, and IRR considered SUPERIOR indicators of Project Feasibility compared to Payback or Recoupment Period and Accounting Rates of Return? Explain briefly.arrow_forwardFinancially, what is the economic worth of outbidding thecompetitors for a project?arrow_forwardWhat are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?arrow_forward
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