Question
ABC Service Inc. has decided to purchase a catamaran, in order to entertain clients when they visit the Caribbean office in Barbados. Management has narrowed
ABC Service Inc. has decided to purchase a catamaran, in order to entertain clients when they visit the Caribbean office in Barbados. Management has narrowed the choice down to two boats manufactured by Luxury Boats Inc., namely the Bluenose and the Sky-rider. The Bluenose will cost $100,000, and is expected to bring the firm $50,000 in additional revenue cash flows per year over the next five years. The Sky-rider, at $250,000, is far more expensive, but is expected to lead to additional revenue cash flows of $80,000 in the first year and $135,000 in each of the following four years. At the end of five years, the company will give the boat to its president. Singhs cost of capital is 10% and its tax rate is 44%
| Ranking Method | Bluenose | Sky-rider |
| Payback
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| Net Present Value
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| Internal Rate of Return
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| Profitability Index
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Why is the NPV regarded as the primary capital budgeting decision criterion?
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Managerial Accounting
Authors: John J. Wild, Ken W. Shaw
2010 Edition
9789813155497, 73379581, 9813155493, 978-0073379586
