Answer:
Limitations :
1. ignores cash flows after payback period
2. ignores the worth of those cashflows over time
Explanation:
Payback Period is the length of time required for the total cash inflows to equal the initial capital investment.
In principle, the sooner the capital expenditure is recouped (paid back) the better and the more attractive the project is. Whilst the longer the period the less attractive the project is.
However, payback method ignores the fact that some projects in their initial phases start with little cash inflows which at a later stage increase significantly. Thus this method ignores cash flows after payback period. Also, this method ignores the worth of those cashflows over time ( ignores time value of money) for a dollar today is worth more than a dollar tomorrow.
Answer:
Behan will recover his amount.
Explanation:
The contract has not been formed as the contract is only enforceable if the contract is legally allowed which means that the selling of fireworks in this case scenario is not allowed and hence Behan and Fourth of July Company are both equally responsible for not committing to such type of agreements. So the company must payback the money as the contract is not enforceable in the jurisdiction.
Answer:
$25,800 increase
Explanation:
The computation of the adjusted retained earning balance is shown below:
Ending inventory was overstated - no change
Add: Depreciation expense was overstated $24,100
Add: Ending inventory was understated $6,500
Less: Depreciation expense was understated ($4,800)
Adjusted retained earning balance $25,800
Answer:
Method B should be used
Explanation:
Note: See the attached excel file for the calculation of the present worth of Method A and Method B.
From the attached excel file, we have:
Present worth of Method A = –$210,889.85
Present worth of Method B = –$118,011.18
Since the present worth of Method A and B above imply Method A costs more than Method B, Method B should be used.