Chapter 7, Problem 1TF15

1.

To determine

Introduction:

Cash flow:

The movement of cash into and out of a business enterprise or company at a specific time refers to the cash flow.

The item(s) in the income statement that will not affect cash flows.

2.

To determine

Introduction:

Cash inflow:

The movement of cash amount that comes into a business enterprise refers to the cash inflow.

The project's annual net cash inflows.

3.

To determine

Introduction:

Net cash inflow:

The movement of cash amount that comes into a business enterprise refers to the cash inflow and net cash inflow of a company involving sales and variable costs.

The present value of the project's annual net cash inflows.

4.

To determine

Introduction:

Net present value:

For a specific project, by comparing initial investment, the present value of cash flows in a particular time at a particular rate of return is the net present value.

The project's net present value.

5.

To determine

Introduction:

Profitability Index:

The attractiveness or profitability of investment in the project can be measured by the profitability index by ranking projects.

The project profitability index for this project.

6.

To determine

Introduction:

Internal Rate of Return:

Internal Rate of Return (IRR) is a rate of interest that is helpful to compare investments of the project with one another and makes the net present value of all cash flows equal to zero.

The project's internal rate of return nearest whole percent.

7.

To determine

Introduction:

Payback period:

The payback period indicates the number of years that are required to recover the original/actual or real investment of the project.

The project's payback period.

8.

To determine

Introduction:

The simple rate of return:

The simple rate of return considers the annual increase in net operating income by reducing or subtracting the depreciation on the investment.

The project's simple rate of return for each of the 5 years.

9.

To determine

Introduction:

Net present value:

For a specific project, by comparing initial investment, the present value of cash flows in a particular time at a particular rate of return is the net present value.

Whether the project's net present value is to be higher/lower/the same if the company's discount rate was 16% instead of 14%.

10.

To determine

Introduction:

Payback period:

The payback period indicates the number of years that are required to recover the original/actual or real investment of the project.

Whether the project's payback period is higher/lower/the same as before if the equipment used had a salvage value of 300k at the end of 5 years.

11.

To determine

Introduction:

Net present value:

For a specific project, by comparing initial investment, the present value of cash flows in a particular time at a particular rate of return is the net present value.

Whether the project's net present value is higher/lower/the same as before If the equipment had a salvage value of 300k at the end of 5 years.

12.

To determine

Introduction:

Internal Rate of Return:

Internal Rate of Return (IRR) is a rate of interest that is helpful to compare investments of the project with one another and makes the net present value of all cash flows equal to zero.

Whether the project's simple rate of return is higher/lower/the same if the equipment had a salvage value of 300k at the end of 5 years.

13.

To determine

Introduction:

Net present value:

For a specific project, by comparing initial investment, the present value of cash flows in a particular time at a particular rate of return is the net present value.

The project's actual net present value if all estimates (including total sales) were exactly correct except for the variable expense ratio, which was actually 45%.

14.

To determine

Introduction:

The payback period:

The payback period indicates the number of years that are required to recover the original/actual or real investment of the project.

The project's actual payback period if all estimates (including total sales) were exactly correct except for the variable expense ratio, which was actually 45%.

15.

To determine

Introduction:

Simple rate of return:

The simple rate of return considers the annual increase in net operating income by reducing or subtracting the depreciation on the investment.

The project's actual simple rate of return if all estimates (including total sales) were exactly correct except for the variable expense ratio, which was actually 45%.