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Anni [7]
3 years ago
9

X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows:Year Project A

Project B1 $12,000 $10,0002 8,000 6,0003 6,000 16,000a) Which of the two projects should be chosen based on the payback method?b) Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent.c) Should a firm normally have more confidence in answer a or answer b?

Business
1 answer:
liq [111]3 years ago
8 0

Answer:

A) Project A = 0.83 year

B) NPV of Project B = $14,609.66

C) Answer B

Explanation:

Requirement A

We know,

Payback period = Last year with negative cumulative cash flows + (Absolute value of last year's cumulative cash flow ÷ Cash flow of the following year's negative cumulative cash flow)

Or, Payback period = A + ( B ÷ C)

                             Project A                                       Project B

Year   Cash Flow   Cumulative Cash Flow    Cash Flow  Cumulative Cash Flow

0 (A)   -$10,000      -$10,000 (B)                     -$10,000        -$10,000 (B)

1           $12,000 (C)      2,000                           $10,000(C)                 0

2              8,000         10,000                               6,000             6,000

3              6,000         16,000                              16,000           22,000

Payback period for project A = 0 + ($10,000 ÷ 12,000) = 0 + 0.833 = 0.83 year

Payback period for project B = 0 + ($10,000 ÷ 10,000) = 0 + 1 = 1 year

X-treme Vitamin Company should choose project A because it can return the investment earlier than project B.

Requirement B

We can use excel to find the Net Present Value for both the projects with a cost of capital of 10%.

The following image shows the NPV for project A and B.

From the calculation of NPV, X-treme Vitamin Company should choose project B as that project yields more present cash flows.

Requirement C

A firm should generally have more confidence in answer b because money can produce more logical sense than a year. Yes, it is easy to understand how many years a company will need to get back its cash flow. Still, the present value of cash flows provides a more specific evaluation of how to utilize the initial investment.

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Answer:

c. 8 percent of the labor force is unemployed.

Explanation:

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3 0
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Answer:

They will decrease as production decreases

Explanation:

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Mathematically it can be defined as  

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7 0
3 years ago
Which of the following journal entries represents an increase in accounts payable correctly
PtichkaEL [24]

Answer:

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Accordingly the company buys inventory and the inventory is an asset and thus, the company will debit the inventory account.

Whenever any purchases are made, or any service is utilized on credit then the company creates an accounts payable as a liability as against it.

8 0
3 years ago
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podryga [215]

Answer:

a. desirable because of the interdependencies between and among functions.

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Some of the international bodies that establish standards used in workflow management are;

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Workflow management systems enhances the automation and management of various business processes, as well as create partnership between different units through the business process.

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6 0
3 years ago
Hyu Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of th
Free_Kalibri [48]

Answer:

The predetermined overhead rate for the recently completed year was $25.33

Explanation:

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8 0
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