Survey of Accounting (Accounting I)
8th Edition
ISBN: 9781305961883
Author: Carl Warren
Publisher: Cengage Learning
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Question
Chapter 15, Problem 6CDQ
To determine
Concept Introduction:
Payback Period:
Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual
To Indicate:
The reason why would the cash payback method understate the value of project with larger residual value
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Which of the following cash flows should not be considered when evaluating a project?
Changes in working capital
Shipping and installation costs
Sunk costs
Opportunity costs
Externalities
Is it worth the effort to estimate daily project cash flows? Would doing so be helpful in the investment analysis? How would the results be negatively or positively affected?
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.
Chapter 15 Solutions
Survey of Accounting (Accounting I)
Ch. 15 - Prob. 1SEQCh. 15 - Management is considering a $100,000 investmentin...Ch. 15 - The expected period of time that will elapse...Ch. 15 - A project that will cost $120,000 is estimated to...Ch. 15 - Prob. 5SEQCh. 15 - What are the principal objections to the use 01the...Ch. 15 - Discuss the principal limitations of the cash...Ch. 15 - Prob. 3CDQCh. 15 - Prob. 4CDQCh. 15 - Prob. 5CDQ
Ch. 15 - Prob. 6CDQCh. 15 - Prob. 7CDQCh. 15 - Prob. 8CDQCh. 15 - Prob. 9CDQCh. 15 - Prob. 10CDQCh. 15 - Prob. 11CDQCh. 15 - Prob. 12CDQCh. 15 - Prob. 13CDQCh. 15 - Prob. 14CDQCh. 15 - Prob. 15CDQCh. 15 - Monsanto Company, a large chemical and...Ch. 15 - Average rate of return The following data are...Ch. 15 - Prob. 15.2ECh. 15 - Average rate of return—new product Arrowhead Inc....Ch. 15 - Calculate cash flows Daffodil Inc. is planning to...Ch. 15 - Prob. 15.5ECh. 15 - Cash payback method Bliss Beauty Products ¡s...Ch. 15 - Prob. 15.7ECh. 15 - Prob. 15.8ECh. 15 - Net present value method—annuity Model 99 Hotels...Ch. 15 - Prob. 15.10ECh. 15 - Prob. 15.11ECh. 15 - Prob. 15.12ECh. 15 - Prob. 15.13ECh. 15 - Average rate of return, cash payback period, net...Ch. 15 - Prob. 15.15ECh. 15 - Internal rate of return method The internal rate...Ch. 15 - Prob. 15.17ECh. 15 - Internal rate of return method—two projects Strahn...Ch. 15 - Prob. 15.19ECh. 15 - Prob. 15.20ECh. 15 - Prob. 15.21ECh. 15 - Prob. 15.22ECh. 15 - Average rate of return method, net present value...Ch. 15 - Average rate of return method, net present value...Ch. 15 - Prob. 15.2.1PCh. 15 - Cash payback period, net present value method, and...Ch. 15 - Prob. 15.3.1PCh. 15 - Prob. 15.3.2PCh. 15 - Prob. 15.3.3PCh. 15 - Prob. 15.4.1PCh. 15 - Prob. 15.4.2PCh. 15 - Prob. 15.4.3PCh. 15 - Prob. 15.5.1PCh. 15 - Prob. 15.5.2PCh. 15 - Prob. 15.5.3PCh. 15 - Prob. 15.6.1PCh. 15 - Prob. 15.6.2PCh. 15 - Prob. 15.6.3PCh. 15 - Prob. 15.6.4PCh. 15 - Capital rationing decision involving four...Ch. 15 - Prob. 15.6.6PCh. 15 - Prob. 15.6.7PCh. 15 - Prob. 15.6.8PCh. 15 - Prob. 15.1.1MBACh. 15 - Prob. 15.1.2MBACh. 15 - Financial leverage MicrosoCortrepotied (MSFT)...Ch. 15 - Prob. 15.1.4MBACh. 15 - Prob. 15.2.1MBACh. 15 - Prob. 15.2.2MBACh. 15 - Prob. 15.2.3MBACh. 15 - Prob. 15.3.1MBACh. 15 - Prob. 15.3.2MBACh. 15 - Prob. 15.3.3MBACh. 15 - Prob. 15.4MBACh. 15 - Prob. 15.5.1MBACh. 15 - Financial leverage Costco Wholesale Corporation...Ch. 15 - Prob. 15.5.3MBACh. 15 - Prob. 15.5.4MBACh. 15 - Ethics and professional conduct in business Erin...Ch. 15 - Prob. 15.2.1CCh. 15 - Prob. 15.2.2CCh. 15 - Prob. 15.2.3CCh. 15 - Prob. 15.3.1CCh. 15 - Prob. 15.3.2CCh. 15 - Qualitative issues in investment analysis The...Ch. 15 - Prob. 15.5.1CCh. 15 - Prob. 15.5.2CCh. 15 - Prob. 15.6C
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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_forwardWhy is it not always possible for the cash borrowed (released) from a project to be reinvested to yield a rate of return equal to that received from the project?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
- What 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_forwardExplain why depreciation should not be included as a cost in a discounted cash flow (DCF) analysis of a project.arrow_forwardWhich of the following methods does not consider the investment’s profitability? ARR Payback NPV IRRarrow_forward
- How can the working-capital requirements significantly reduce a project's profitability or rate of return?arrow_forwardWould changes in the cost of capital ever cause a change in the IRR ranking of projects? Why or why not?arrow_forwardWhich of the following would cause a project to have a lower net present value, thereby making the project less appealing? A. The discount rate increases B. The cash flows are extended over a longer period of time. C. The investment cost decreases without affecting the expected income and life of the project. d. The cash flows are accelerated and the project life is correspondingly shortened.arrow_forward
- What 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_forwardWhy do we need to predict how certain costs will behave in response to change activity in project cash-flow analysis?arrow_forwardFinancially, what is the economic worth of outbidding thecompetitors for a project?arrow_forward
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