Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Textbook Question
Chapter 26, Problem 1CMA
Foster Manufacturing is analyzing a capital investment project that is
Using the present value tables provided in Appendix A, the
- a. 5%.
- b. 12%.
- c. 14%.
- d. 40%.
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Consider the following project cash flow.
YEAR
CASH FLOW
0
-1000
1
500
2
500
3
500
4
500
5
500
Use this information to calculate the Internal Rate of Return by linear interpolation(the trial and error method).
WITH WORKING PLEASE
How do you calculate net investment in working capital, net cash flows, present value of net cash flows, and NPV?
WACC is 10.10%
Consider the cash flows for the investment projects given in Table. Assume that the
MARR = 10%.
(a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected
on the basis of the IRR criterion
(b) Assume that projects C and È are mutually exclusive. Using the IRR criterion, which
Project would you select?
Net Cash Flow
A
В
C
D
E
-4,250
3,200
2,850
-4,250
1,500
3,250
1,600
1,200
-4,250
2,850
-4,850
2,100
2,100
2,100
2,100
2,500
1
-835
2,900
1,050
500
2
-835
3
800
-835
4
300
-835
Chapter 26 Solutions
Financial And Managerial Accounting
Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Why would the average rate of return differ from...Ch. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - Prob. 7DQCh. 26 - Two projects have an identical net present value...Ch. 26 - Prob. 9DQCh. 26 - What are the major disadvantages of the use of the...
Ch. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Average rate of return Determine the average rate...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Prob. 3BECh. 26 - Internal rate of return A project is estimated to...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 Maui...Ch. 26 - Average rate of returnnew product Hana Inc. is...Ch. 26 - Determine cash flows Natural Foods Inc. is...Ch. 26 - Prob. 5ECh. 26 - Cash payback method Lily Products Company is...Ch. 26 - Prob. 7ECh. 26 - Prob. 8ECh. 26 - Net present value methodannuity for a service...Ch. 26 - Net present value methodannuity Jones Excavation...Ch. 26 - Prob. 11ECh. 26 - Prob. 12ECh. 26 - Net present value method and present value index...Ch. 26 - Average rate of return, cash payback period, net...Ch. 26 - Prob. 15ECh. 26 - Internal rate of return method The internal rate...Ch. 26 - Prob. 17ECh. 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 - Prob. 21ECh. 26 - Prob. 22ECh. 26 - Prob. 1PACh. 26 - Cash payback period, net present value method, and...Ch. 26 - Prob. 3PACh. 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 - Prob. 1PBCh. 26 - Prob. 2PBCh. 26 - Net present value method, present value index, and...Ch. 26 - Net present value method, internal rate of return...Ch. 26 - Prob. 5PBCh. 26 - Clearcast Communications Inc. is considering...Ch. 26 - San Lucas Corporation is considering investment in...Ch. 26 - Assume San Lucas Corporation in MAD 26-1 assigns...Ch. 26 - Prob. 3MADCh. 26 - Prob. 4MADCh. 26 - Home Garden Inc. is considering the construction...Ch. 26 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Prob. 4TIFCh. 26 - Prob. 5TIFCh. 26 - Prob. 6TIFCh. 26 - Foster Manufacturing is analyzing a capital...Ch. 26 - Staten Corporation is considering two mutually...Ch. 26 - Prob. 3CMACh. 26 - Prob. 4CMA
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- The accounting rate of return (also known as the unadjusted rate of return) can be calculated as: (See your Chapter 25 notes, page 2) Initial cost of the investment divided by the annual net cash inflow Initial cost of the investment minus the annual net cash inflow Average amount of the investment divided by the average annual net income Average annual net income divided by the average amount of the investment Present value of net cash inflow divided by the initial cost of the investment Annual net cash inflow minus the initial cost of the investment Future value of net cash inflow divided by the initial cost of the investment Present value of the net cash inflow minus the initial cost of the investmentarrow_forwardWhich of the following comes closest to the net present value (NPV) of a project whose initial investment is $5 and which produces two cash flows: the first at the end of year 2 of $3 and the second at the end of year 4 of $7? The required rate of return is 13%? Select one: a. $1.84 b. $0 c. $1.64 d. $2.05 e. $2.26arrow_forwardCalculate the HPR of the following investment, entered as a percentage (Example: if your answer is 14.5%, enter 14.5 and not 0.145) Period Cashflow 0 -14100 1 3300 2 3300 3 3100 4 2800arrow_forward
- Consider the cash flows for the investment projects given in Table. Assume that the MARR = 10%. (a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected on the basis of the IRR criterion? (b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which Project would you select?. Net Cash Flow B D. E -4,850 2,100 2,100 2,500 4,250 3,200 2,850 800 300 4,250 4,250 2,850 2,900 1,050 500 -835 -835 -835 -835 1,500 3.250 1,600 1,200 2,100 2,100arrow_forwardProfitability index. Given the discount rate and the future cash flow of each project listed in the following table, , use the PI to determine which projects the company should accept. ..... What is the Pl of project A? (Round to two decimal places.)arrow_forwardConsider the cash flows for the following investment projects: (a) For Project A. find the value of X that makes the equivalent annual receiptsequal the equivalent annual disbursement at i = 13%.(b) Would you accept Project Bat i = 15% based on the AE criterion?arrow_forward
- For the investment shown in the following table, calculate the rate of return earned over the unspecified time period. Cash flow during period Beginning-of- period value End-of- period value $370 $42,400 $36,500 The rate of return on the investment is enter your response here%arrow_forwardFinancial assets management decision-making often involves determination of the Present Value (PV) of the flow of money over time. If a monetary PV is given by: PV = Gt/(1+m)t (i) Identify and explain each of the variables: G, m, and t. (ii) Explain how an increase in m would impact the PV of this financial asset. (iii) Find how much would be required to generate a PV of 890, over a 5 years period, at a constant annual interest rate of 4 percent.arrow_forwardFor a project that has an initial cash outflow followed by cash inflows, the profitability index (PI) is equal to the present value of cash inflows divided by the cost of capital. True kalsearrow_forward
- Average Rate of Return Method, Net Present Value Method, and Analysis for a service company The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Front-End Loader Year 1 2 3 4 5 Total Year 1 2 3 4 5 6 7 Operating Income 8 9 10 $54,000 54,000 54,000 54,000 54,000 $270,000 0.943 Each project requires an investment of $600,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 10% Net Cash Flow 0.909 0.826 0.751 $172,000 172,000 172,000 172,000 172,000 $860,000 12% 0.893 0.797 0.756 0.712 0.658 0.683 0.636 0.572 0.621 0.567 0.497 0.564 0.507 0.513 0.467 0.424 0.386 0.452 0.404 15% 0.361 0.322 0.870 0.432 0.376 0.327 0.284 0.247 Operating Income…arrow_forwardCalculate/estimate the IRR(s) for a 6-year project with the following cash flows: CF0 = -50, CF1 =28 = CF2 = CF3 = CF4 = CF5, and CF6 = -93. In Excel, plot the NPV (= Y axis) against r (= discountrate), using r = 0%, 2%, and so on until you find all IRRs in the chart. Identify/estimate all IRRs.arrow_forward7.16)Consider the investment projects given in Table P7.16. Assume that MARR = 12% in the following questions. (a) Compute i* for each investment. If the problem has more than one i*, identify all of them. (b) Compute IRR(true) for each project. (c) Compute the MIRR at MARR = 12%. (d) Determine the acceptability of each investment. TABLE P7.16 Net Cash Flow Project 1 Project 2 Project 3 -$1,000 -$1,000 -$1,000 1 2,500 1,960 1,400 2 -840 950 -200arrow_forward
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