Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Textbook Question
Chapter 12, Problem 4PA
The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net
The wind turbines require an investment of $887,600, while the biofuel equipment requires an investment of $911,100. No residual value is expected from either project.
Instructions
- 1. Compute the following for each project:
- A. The net present value. Use a rate of 6% and the present value of an annuity table appearing in Exhibit 5 of this chapter.
- B. A present value index. (Round to two decimal places.)
- 2. Determine the internal rate of return for each project by (A) computing a present value factor for an annuity of $1 and (B) using the present value of an annuity of $1 table appearing in Exhibit 5 of this chapter.
- 3. What advantage does the internal rate of return method have over the net present value method in comparing projects?
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Net present value method, internal rate of return method, and analysisThe management of Advanced Alternative Power Inc. is considering twocapital investment projects. The estimated net cash flows from eachproject are as follows:
The wind turbines require an investment of $887,600, while the biofuelequipment requires an investment of $911,100. No residual value isexpected from either project.Instructions1. Compute the following for each project:a. The net present value. Use a rate of 6% and the present value of anannuity of $1 table appearing in this chapter (Exhibit 5).b. A present value index. Round to two decimal places.2. Determine the internal rate of return for each projectby (a)computing a present value factor for an annuity of $1 and (b) using thepresent value of an annuity of $1 table appearing in this chapter (Exhibit 5).3. What advantage does the internal rate of return method have over then net present value method in comparing projects ?
Net present value method, internal rate of return method,
and analysis for a service company
The management of Advanced Alternative Power Inc. is
considering two capital investment projects. The estimated
net cash flows from each project are as follows:
Year
3
4
5
6
1
7
8
2
9
10
3
4
The wind turbines require an investment of $713,750, while
the biofuel equipment requires an investment of
$1,518,500. No residual value is expected from either
project.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.909
0.893
0.870
0.833
2
1.690
1.626
1.528
2.106
0.943
1.833
2.673
3.465
4.212
Wind
Turbines
$250,000
250,000
250,000
250,000
3.170
3.791
4.917
4.355
5.582
4.868
6.210
5.335
6.802 5.759
7.360
6.145
Required:
Biofuel
Equipment
1.736
2.487
Amount to be invested
Net present value
$500,000
500,000
500,000
500,000
Wind Turbines
Biofuel Equipment
2.402
3.037
Present value of annual net cash flows
2.283
2.855
3.605 3.353
4.111
3.785
4.564
4.160
4.968
4.487
5.328…
A company is considering three alternative investment projects with different net cash flows. The
present value of net cash flows is calculated using Excel and the results follow.
Potential Projects
Present value of net cash flows (excluding initial investment)
Initial investment
Project A
$ 11,226
(10,000)
Project B
$ 10,568
(10,000)
a. Compute the net present value of each project.
b. If the company accepts all positive net present value projects, which of these will it accept?
c. If the company can choose only one project, which will it choose on the basis of net present value?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
Compute the net present value of each project.
Potential Projects
Project A
Project B
Project C
Present value of net cash flows
Initial investment
Net present value
$
$
$
Chapter 12 Solutions
Managerial Accounting
Ch. 12 - What are the principal objections to the use of...Ch. 12 - Discuss the principal limitations of the cash...Ch. 12 - Prob. 3DQCh. 12 - Your boss has suggested that a one-year payback...Ch. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - A net present value analysis used to evaluate a...Ch. 12 - Two projects have an identical net present value...Ch. 12 - Prob. 9DQCh. 12 - What are the major disadvantages of the use of the...
Ch. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Average rate of return Determine the average rate...Ch. 12 - Prob. 2BECh. 12 - Prob. 3BECh. 12 - Internal rate of return A project is estimated to...Ch. 12 - Prob. 5BECh. 12 - Average rate of return The following data are...Ch. 12 - Average rate of returncost savings Maui...Ch. 12 - Average rate of returnnew product Hana Inc. is...Ch. 12 - Determine cash flows Natural Foods Inc. is...Ch. 12 - Cash payback period for a service company Janes...Ch. 12 - Cash payback method Lily Products Company is...Ch. 12 - Prob. 7ECh. 12 - Net present value method for a service company...Ch. 12 - Net present value methodannuity for a service...Ch. 12 - Net present value methodannuity Jones Excavation...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Net present value-unequal lives Bunker Hill Mining...Ch. 12 - Prob. 22ECh. 12 - Average rate of return method, net present value...Ch. 12 - Prob. 2PACh. 12 - Net present value method, present value index, and...Ch. 12 - Net present value method, internal rate of return...Ch. 12 - Prob. 5PACh. 12 - Prob. 6PACh. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Net present value method, present value index, and...Ch. 12 - Prob. 4PBCh. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - San Lucas Corporation is considering investment in...Ch. 12 - Prob. 2MADCh. 12 - Prob. 3MADCh. 12 - Prob. 4MADCh. 12 - Prob. 5MADCh. 12 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 12 - Ethics in Action Danielle Hastings was recently...Ch. 12 - Prob. 4TIFCh. 12 - CEO, Worthington Industries (WOR) (a...Ch. 12 - Prob. 6TIFCh. 12 - Prob. 1CMACh. 12 - Staten Corporation is considering two mutually...Ch. 12 - Prob. 3CMACh. 12 - Foster Manufacturing is analyzing a capital...
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