Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
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Question
Chapter 12, Problem 17MCQ
To determine
Identify the function(s) of a postaudit.
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QUESTION 1
The accounts manager of VM Gym & Sports has been asked to evaluate a potential capital
investment of a set of rowing machines. The following data is available for cach project:
Machine 1
Machine 2
RM
RM
Cost (immediate outlay)
500,000
245,000
Expected annual profits (losses)
Year 1
I.
80,000
84,000
Year 2
90,000
136,000
Year 3
116,000
126,000
Year 4
146,000
150,000
Annual running costs
30,000
24,000
Annual service costs
36,000
20,000
Estimated residual value equipment
40,000
30,000
*The total annial running and service costs for Machine 2 in the first year is RM 36,000
The committee has estimated a cost of capital of 30% and employs the straight-line method
of depreciation for all fixed assets when calculating net profit. The following discount factors
are given:
Year
Cost of capital
10%
50%
0.909
0.667
2.
0.826
0.444
3.
0.751
0.296
4.
0.683
0.198
Calculating Net Present Value of a project is an application of which technique:
a. SWOT Analysis.b. Future value.c. Cost Benefit Analysis. d. Discounting.e. Compounding.
The cost of capital represents a. the capital outlay required in a project. b. the initial investment of a project. c. the IRR of the investment. d. the minimum ROI of the investment.
Chapter 12 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
Ch. 12 - Prob. 1DQCh. 12 - Explain why the timing and quantity of cash flows...Ch. 12 - The time value of money is ignored by the payback...Ch. 12 - What is the payback period? Compute the payback...Ch. 12 - Name and discuss three possible reasons that the...Ch. 12 - Prob. 6DQCh. 12 - The NPV is the same as the profit of a project...Ch. 12 - Explain the relationship between NPV and a firms...Ch. 12 - Prob. 9DQCh. 12 - What is the role that the required rate of return...
Ch. 12 - Explain how the NPV is used to determine whether a...Ch. 12 - The IRR is the true or actual rate of return being...Ch. 12 - Prob. 13DQCh. 12 - Explain why NPV is generally preferred over IRR...Ch. 12 - Suppose that a firm must choose between two...Ch. 12 - Prob. 1MCQCh. 12 - To make a capital investment decision, a manager...Ch. 12 - Mutually exclusive capital budgeting projects are...Ch. 12 - Prob. 4MCQCh. 12 - An investment of 1,000 produces a net cash inflow...Ch. 12 - The payback period suffers from which of the...Ch. 12 - Prob. 7MCQCh. 12 - An investment of 2,000 provides an average net...Ch. 12 - If the NPV is positive, it signals a. that the...Ch. 12 - Prob. 10MCQCh. 12 - Prob. 11MCQCh. 12 - Using NPV, a project is rejected if it is a. equal...Ch. 12 - If the present value of future cash flows is 4,200...Ch. 12 - Assume that an investment of 1,000 produces a...Ch. 12 - Which of the following is not true regarding the...Ch. 12 - Using IRR, a project is rejected if the IRR a. is...Ch. 12 - Prob. 17MCQCh. 12 - Postaudits of capital projects are useful because...Ch. 12 - For competing projects, NPV is preferred to IRR...Ch. 12 - Assume that there are two competing projects, A...Ch. 12 - Prob. 21BEACh. 12 - Accounting Rate of Return Uchdorf Company invested...Ch. 12 - Net Present Value Snow Inc. has just completed...Ch. 12 - Internal Rate of Return Lisun Company produces a...Ch. 12 - NPV and IRR, Mutually Exclusive Projects Hunt Inc....Ch. 12 - Prob. 26BEBCh. 12 - Accounting Rate of Return Cannon Company invested...Ch. 12 - Net Present Value Talmage Inc. has just completed...Ch. 12 - Internal Rate of Return Richins Company produces...Ch. 12 - NPV and IRR, Mutually Exclusive Projects Techno...Ch. 12 - Prob. 31ECh. 12 - Accounting Rate of Return Each of the following...Ch. 12 - Net Present Value Each of the following scenarios...Ch. 12 - Internal Rate of Return Each of the following...Ch. 12 - Net Present Value and Competing Projects Spiro...Ch. 12 - Payback, Accounting Rate of Return, Net Present...Ch. 12 - Prob. 37ECh. 12 - Net Present Value, Basic Concepts Wise Company is...Ch. 12 - Solving for Unknowns Each of the following...Ch. 12 - Net Present Value versus Internal Rate of Return...Ch. 12 - Basic Net Present Value Analysis Jonathan Butler,...Ch. 12 - Net Present Value Analysis Emery Communications...Ch. 12 - Basic Internal Rate of Return Analysis Julianna...Ch. 12 - Net Present Value, Uncertainty Ondi Airlines is...Ch. 12 - Review of Basic Capital Budgeting Procedures Dr....Ch. 12 - Net Present Value and Competing Alternatives...Ch. 12 - Kildare Medical Center, a for-profit hospital, has...Ch. 12 - Foster Company wants to buy a numerically...Ch. 12 - Cost of Capital, Net Present Value Leakam Companys...Ch. 12 - I know that its the thing to do, insisted Pamela...Ch. 12 - Newmarge Products Inc. is evaluating a new design...Ch. 12 - Prob. 52PCh. 12 - Prob. 53PCh. 12 - Manny Carson, certified management accountant and...Ch. 12 - Prob. 55CCh. 12 - Prob. 1MTCCh. 12 - NoFat manufactures one product, olestra, and sells...Ch. 12 - Prob. 3MTCCh. 12 - NoFat manufactures one product, olestra, and sells...Ch. 12 - NoFat manufactures one product, olestra, and sells...
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Similar questions
- Comparing Investment Criteria. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Internal rate of return. c. Profitability index. d. Net present value.arrow_forwardDescribe the project-screening tool method used to evaluate the investment projects?arrow_forward1. Calvulate the internal rate of return(IRR) of each project and based on this criterion. Indicate which project you would recommend or acceptance.arrow_forward
- Calculate the accounting rate of return for project A and B.arrow_forwardb)Â Calculate the profitability index (PI) of each project, assess its acceptability, and indicate which project is best using PI.arrow_forwardFind the net present value for each situation and indicate if the investment should be madearrow_forward
- Discuss and evaluate the use of the payback period as an investment criterion.arrow_forwardCalculate :Â Internal rate of return for Project A. (Use interpolation technique)arrow_forwardWhat is the second step of capital budgeting? a. Gathering the money for the investment b. Identifying potential projects c. Getting the accountant involved d. All of the abovearrow_forward
- Explain how a net present value (NPV) profile is used to compare capital projects. How does this profile compare to that of internal rate of return (IRR)? How does reinvestment affect both NPV and IRR? Support your rationale with at least one citation from the literature.arrow_forwardDescribe the method used to evaluate investment projects?arrow_forwardEXPLAIN EACH WITH EXAMPLE 1. EVALUATING CAPITAL INVESTMENT PROJECTS 2. CAPITAL INVESTMENT FACTORS 3.NET INVESTMENT 4.NET RETURNSarrow_forward
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