Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Life of Project Project A $ 5 Investment Net Present Required Value $ 205,000 $ 61,770 420,000 $ 19,032 1,010,000 $ 214,075 $ 1,540,000 $

image text in transcribedimage text in transcribedimage text in transcribed

Life of Project Project A $ 5 Investment Net Present Required Value $ 205,000 $ 61,770 420,000 $ 19,032 1,010,000 $ 214,075 $ 1,540,000 $ 2,796 Internal Rate Profitability Payback Period Accounting Rate of Return Index in Years of Return 24 % 1.30 2.77 17% 22 % 1.05 3.18 15% 19 % 1.21 2.13 13 % 12 % 1.00 3.03 25 % B 6 3 D 4 The following table contains information about four projects in which Reynolds Corporation has the opportunity to invest. This information is based on estimates that different managers have prepared about their potential project. Click the icon to view the projects information.) Requirements 1. Rank the four projects in order of preference by using the a. net present value. b. project profitability index. C. internal rate of return. d. payback period. e. accounting rate of return. 2. Which method(s) do you think is best for evaluating capital investment projects in general? Why? Requirement 1. Rank the projects in order of preference. (a) (b) Profitability Index (c) Internal Rate Net Present (d) Payback Period (e) Accounting Rate of Return Value of Return 1st preferred 2nd preferred 3rd preferred 4th preferred Requirement 2. Select the method that corresponds to the appropriate explanation. 1: This method indicates profitability by comparing the present value of the investment's net cash inflows with the cost of the investment (already stated at its present value). This method is superior because it incorporates the time value of money. : This method helps to compare the NPV across alternative investments of varying sizes. This method also indicates profitability and incorporates the time value of money. This method will show us the actual rate of return being earned on the investment by equating the present value of the net cash inflows to the investment's cost. In other words, it is the interest rate which brings the investment's NPV to zero. 1: This method will show the company how quickly it recoups its initial investment. This method will be good for screening out those potential investments that are too risky because the period is too long. However, the period will not be the sole criterion for accepting capital investments since it does not give the company any insight about the investment's profitability. Additionally, it does not incorporate the time value of money. : This method will give the company an indication of how profitable the investment will be. However, since it does not consider the time value of money, it is not the best indicator of profitability. This method is the only method that uses

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Quality Assessment Manual For The Internal Audit Activity

Authors: The Internal Audit Foundation

2017 Edition

0894139975, 978-0894139970

More Books

Students also viewed these Accounting questions

Question

What are the types of Gout?

Answered: 1 week ago