Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Q 4 . Joyce is a new assistant manager in Peace AgBiz. H er boss asked h er to evaluate the capital budget opportunities of

Q4. Joyce is a new assistant manager in Peace AgBiz. Her boss asked her to evaluate the capital budget opportunities of two potential investments: Project A and Project B. Joyce has not much knowledge about capital budgeting decision procedures, so she asked you for help. Fill out the following table and then answer the following questions. (10 points in total)

Project A

Project B

Year

After Tax Benefit ($)

Present Value Factor

After Tax present value of benefit

After Tax Benefit($)

Present Value Factor

After Tax present value of benefit

Year 1

$4,000

$2,000

Year 2

$6,000

$3,000

Year 3

$3,000

$4,000

Year 4

$2,000

$5,000

Year 5

$1,000

$6,000

Year 6

$1,000

$7,000

Total

Note: The discount/interest rate is 7% and the initial total cost is $10,000

  1. If the maximum payback period is allowed is 5 years, use the Payback method to find which project should Paul choose. (2 points)

  1. If the average yearly investment for both Project A and Project B are $10,000, use the Average Rate of Return method to find the project Paul should choose. (2 points)

  1. Use the Net Present Value Method to help Paul make a decision. (2 points)

  1. Use the Benefit /Cost Ratio to help him make a decision. (2 points)

  1. Use the Amortization Method to find which project should be accepted. (2 points)

(Hint: find the equivalent annual cost (EAC) first, and then find the net benefit and Benefit/Cost ratio)

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

Auditing That Matters Case Studies

Authors: Norman David Marks

1st Edition

B089J17FFW, 979-8650160410

More Books

Students also viewed these Accounting questions

Question

3. How has e-commerce transformed marketing?

Answered: 1 week ago