acct 405
gymjunky
week_7_acct_405_.xlsxProblem P12-1A
| Name: | Solution | ||||||||
| Course: | |||||||||
| Date: | |||||||||
| P12-1A – Compute annual rate of return, cash payback, and net present value | |||||||||
| Managerial Accounting, 6th Edition, by Weygandt, Kieso, and Kimmel | |||||||||
| Primer on Using Microsoft Excel in Accounting by Rex A Schildhouse | |||||||||
| Problem P12-1A Henkel Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows: | |||||||||
| Project Kilo | Project Lima | Project Oscar | |||||||
| Capital investment: | $150,000 | $160,000 | $200,000 | ||||||
| Salvage value: | $0 | $0 | $0 | ||||||
| Annual net income: | |||||||||
| Year: | 1 | 14,000 | 18,000 | 27,000 | |||||
| 2 | 14,000 | 17,000 | 23,000 | ||||||
| 3 | 14,000 | 16,000 | 21,000 | ||||||
| 4 | 14,000 | 12,000 | 13,000 | ||||||
| 5 | 14,000 | 9,000 | 12,000 | ||||||
| Total: | $70,000 | $72,000 | $96,000 | ||||||
| Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is: | 15% | ||||||||
| (Assume that cash flows occur evenly throughout the year.) | |||||||||
| Instructions: | |||||||||
| (a) Compute the cash payback period for each project. (Round to two decimals.) | |||||||||
| Project Kilo | |||||||||
| Depreciation per year = | Area for formula | ||||||||
| Cash payback period = | Area for formula | ||||||||
| Project Lima | Project Oscar | ||||||||
| Depreciation = | Depreciation = | ||||||||
| Area for formula | Area for formula | ||||||||
| Year | Annual Cash Inflow: | Depreciation Value: | Cumulative Cash Inflow: | Year | Annual Cash Inflow: | Depreciation Value: | Cumulative Cash Inflow: | ||
| 1 | Amount | Amount | Formula | 1 | Amount | Amount | Formula | ||
| 2 | Amount | Amount | Formula | 2 | Amount | Amount | Formula | ||
| 3 | Amount | Amount | Formula | 3 | Amount | Amount | Formula | ||
| 4 | Amount | Amount | Formula | 4 | Amount | Amount | Formula | ||
| 5 | Amount | Amount | Formula | 5 | Amount | Amount | Formula | ||
| Area for formula | Area for formula | ||||||||
| Area for formula | Area for formula | ||||||||
| Area for formula | Area for formula | ||||||||
| (b) Compute the net present value for each project. (Round to nearest dollar.) | |||||||||
| Project Kilo | Project Lima | Project Oscar | |||||||
| Discount | Cash | Cash | Cash | ||||||
| Year | Factor | Inflow | PV | Inflow | PV | Inflow | PV | ||
| 1 | Formula | Amount | Formula | Amount | Formula | Amount | Formula | ||
| 2 | Formula | Amount | Formula | Amount | Formula | Amount | Formula | ||
| 3 | Formula | Amount | Formula | Amount | Formula | Amount | Formula | ||
| 4 | Formula | Amount | Formula | Amount | Formula | Amount | Formula | ||
| 5 | Formula | Amount | Formula | Amount | Formula | Amount | Formula | ||
| Total | Formula | Formula | Formula | Formula | Formula | Formula | |||
| Capital investment: | Amount | Amount | Amount | ||||||
| Positive (negative) net present value: | Formula | Formula | Formula | ||||||
| (c) Compute the annual rate of return for each project. (Round to two decimals.) (Hint: Use average annual net income in your computation.) | |||||||||
| Project Kilo | Formula or percentage as desired. | ||||||||
| Project Lima | Formula or percentage as desired. | ||||||||
| Project Oscar | Formula or percentage as desired. | ||||||||
| (d) Rank the projects on each of the foregoing bases. Which project would you recommend? | |||||||||
| Project | Cash Payback | Net Present Value | Annual Rate of Return | ||||||
| Project Kilo | Number | Number | Number | ||||||
| Project Lima | Number | Number | Number | ||||||
| Project Oscar | Number | Number | Number | ||||||
| Enter your text answer here. | |||||||||
FileName: &F, Tab: &A, Page &P of &N, &D, &T
