Because the company's cash is limited, Andrews thinks the payback method should be used to choose...
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Because the company's cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects. a. What are the benefits and limitations of using the payback method to choose between projects? b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Andrews choose? 2. Bart thinks that projects should be selected based on their NPVs. Assume all cash flows occur at the end of the year except for initial investment amounts. Calculate the NPV for each project. Ignore income taxes. 3. Which projects, if any, would you recommend funding? Briefly explain why. Data table A 1 2 Projected cash outflow 3 Net initial investment 4 Projected cash inflows 5 Year 1 6 Year 2 7 Year 3 8 Year 4 Required rate of return Print B Project A C Project B $ 3,000,000 $ 1,500,000 $4,000,000 D Project C $ 1,000,000 $ 400,000 $2,000,000 1,000,000 900,000 2,000,000 1,000,000 800,000 200,000 1,000,000 100,000 10% 10% Done 10% X Because the company's cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects. a. What are the benefits and limitations of using the payback method to choose between projects? b. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Andrews choose? 2. Bart thinks that projects should be selected based on their NPVs. Assume all cash flows occur at the end of the year except for initial investment amounts. Calculate the NPV for each project. Ignore income taxes. 3. Which projects, if any, would you recommend funding? Briefly explain why. Data table A 1 2 Projected cash outflow 3 Net initial investment 4 Projected cash inflows 5 Year 1 6 Year 2 7 Year 3 8 Year 4 Required rate of return Print B Project A C Project B $ 3,000,000 $ 1,500,000 $4,000,000 D Project C $ 1,000,000 $ 400,000 $2,000,000 1,000,000 900,000 2,000,000 1,000,000 800,000 200,000 1,000,000 100,000 10% 10% Done 10% X
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1aPayback period is the period of time that the project will take to recover the initial investment A shorter period is preferable compared to a longe... View the full answer
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0132109178
14th Edition
Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav
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