28. Madson's is analyzing two projects for the future. Assume that only one project can be selected. Project X Project Y Cost of $30,000 $30,000 Machine Net Cash Flow Year 1 12,000 2,000 Year 2 12,000 12,000 13,000 13,000 Year 3 Year 4 10,000 Year 5 If the company is using the payback period method and requires payback within three years or less, which project should be selected? (Ignore taxes.) A. Project X B. Project Y C. Either Project X or Y is acceptable D. Neither Project X nor Y is acceptable

28. Madson's is analyzing two projects for the future. Assume that only one project can be selected. Project X Project Y Cost of $30,000 $30,000 Machine Net Cash Flow Year 1 12,000 2,000 Year 2 12,000 12,000 13,000 13,000 Year 3 Year 4 10,000 Year 5 If the company is using the payback period method and requires payback within three years or less, which project should be selected? (Ignore taxes.) A. Project X B. Project Y C. Either Project X or Y is acceptable D. Neither Project X nor Y is acceptable

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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7. The NPV and payback period What information does the payback period provide? Suppose Extensive Enterprises's CFO is evaluating a project with the following cash inflows. She does not know the project's initial cost; however, she does know that the project's regular payback period is 2.5 years. Year Year 1 Year 2 Year 3 Year 4 Cash Flow $275,000 $475,000 $500,000 $400,000 If the project's weighted average cost of capital (WACC) is 10%, what is its NPV? $291,425 O $276,854 O $233,140 O $335,139 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. The discounted payback period is calculated using net income instead of cash flows. The discounted payback period does not take the time value of money into account. The discounted payback period does not take the project's entire life into account.
7. The NPV and payback period What information does the payback period provide? Suppose Praxis Corporation's CFO is evaluating a project with the following cash inflows. She does not know the project's initial cost; however, she does know that the project's regular payback period is 2.5 years. Year Year 1 Year 2 Year 3 Year 4 Cash Flow $350,000 $450,000 $475,000 $400,000 If the project's weighted average cost of capital (WACC) is 7%, what is its NPV? $300,440 $394,328 $413,105 $375,550 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. The discounted payback period is calculated using net income instead of cash flows. The discounted payback period does not take the project's entire life into account. The discounted payback period does not take the time value of money into account.
7. The NPV and payback period What information does the payback period provide? Suppose Omni Consumer Products's CFO is evaluating a project with the following cash inflows. She does not know the project's initial cost; however, she does know that the project's regular payback period is 2.5 years. Year Cash Flow Year 1 $375,000 Year 2 $500,000 Year 3 $400,000 Year 4 $425,000 If the project's weighted average cost of capital (WACC) is 9%, what is its NPV? O $239,865 O $299,831 O $344,806 O $269,848 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that аpply. O The discounted payback period is calculated using net income instead of cash flows. O The discounted payback period does not take the time value of money into account. O The discounted payback period does not take the project's entire life into account.
Tiffany Co. is analyzing two projects for the future. Assume that only one project can be selected. Project Y Project X Cost of machine P680,000 P600,000 Net cash flow: Year 1 240,000 40,000 Year 2 240,000 260,000 Year 3 240,000 260,000 Year 4 0 200,000 If the company is using the payback period method and it requires a payback of three years or less, which project should be selected? Group of answer choices Project Y. Project Y because it has a lower initial investment. Both X and Y are acceptable projects. Project X. Neither X nor Y is an acceptable project.
7. The NPV and payback period What information does the payback period provide? Suppose ABC Telecom Inc.’s CFO is evaluating a project with the following cash inflows. She does not know the project’s initial cost; however, she does know that the project’s regular payback period is 2.5 years. Year Cash Flow Year 1 $350,000 Year 2 $500,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 10%, what is its NPV? $280,268 $224,214 $252,241 $322,308 Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. The discounted payback period does not take the project’s entire life into account. The discounted payback period is calculated using net income instead of cash flows. The discounted payback period does not take the time value of money into account.
Moving to another question will save this response. Question 4 XYZ is evaluating a project that would require an initial investment of $74,900.00 today. The project is expected to produce annual cash flows of $8,900.00 each year forever with the first annual cash flow expected in 1 year. The NPV of the project is $7,100.00. What is the IRR of the project? O 10.85% (plus or minus 0.02 percentage points) O 11.88% (plus or minus 0.02 percentage points) O 9.48% (plus or minus 0.02 percentage points) O 13.13% (plus or minus 0.02 percentage points) O None of the above is within 0.02 percentage points of the correct answer A Moving to another question will save this response.
7. The NPV and payback period What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. Year Cash Flow Year 1 $375,000 Year 2 $475,000 Year 3 $500,000 Year 4 $400,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $345,386 $328,117 $414,463 $362,655
7. The NPV and payback period What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. Year Cash Flow Year 1 $300,000 Year 2 $450,000 Year 3 $500,000 Year 4 $500,000 If the project’s weighted average cost of capital (WACC) is 8%, the project’s NPV (rounded to the nearest dollar) is: $470,812 $449,412 $513,613 $428,011 Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not take the time value of money into account. The payback period is calculated using net…
The Michner corporation is trying is trying to choose between the following 2 mutually exclusive design project: Cash Flow 1 Cash Flow 2 Year 0: -82000 -21700 Year 1: 37600 11200 Year 2: 37600 11200 Year 3: 37600 11200 If the required return is 10% and the company applies the profitability index decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take? why are a & b are different
Porter Company is analyzing two potential Investments. Project X $ 97,090 Initial investment Net cash flow: Year 1 Year 2 Year 3 Year 4 Multiple Choice If the company is using the payback period method, and it requires a payback of three years or less, which project(s) should be selected? O 32,500 32,500 32,500 0 Both X and Y are acceptable projects. O Project Y. Project Y $ 77,000 Project Y because it has a lower Initial Investment. Project X 5,700 34,500 34,500 25,000 Neither X nor Y is an acceptable project.
11. Thomson Electric Systems is considering a project that has the following cash flow and WACC data. What is the project's MIRR? WACC = 8% Year: Cash flows: 0 -$700 12. What is the project's IRR rate? $500 13. What is the project's payback period? 2 $200 14. What is the project's discounted payback period? 3 $400
Moving to another question will save this response. Question 5 XYZ is evaluating a project that would last for 3 years. The project's cost of capital is 17.20 percent, its NPV is $43,100.00 and the expected cash flows are presented in the table. What is 27 Years from today 0 1 2 3 Expected Cash Flow (in $) -53,600 71,700 -13,000 X O An amount equal to or greater than $69,384.00 but less than $75,459.00 O An amount equal to or greater than $43,100.00 but less than $52,436.00 O An amount equal to or greater than $52,436.00 but less than $63,115.00 O An amount equal to or greater than $63,115.00 but less than $69,384.00 O An amount less than $43,100.00 or an amount greater than $75,459.00