1 Accounting
The following are 10 technical accounting terms.
Net present value Capital budgeting Incremental analysis Discount rate Payback period Present value Sunk cost Salvage value Return on average investment Capital budget audit Each of the following statements may (or may not) describe one of these technical terms.
For each statement, indicate the accounting term described, or answer âNoneâ if the statement does not correctly describe any of the terms.
a the examination of difference among revenue, costs, and cash flows under alternative courses of actions
b a cost incurred in the past that cannot be changed as a result of future actions
c the process of planning and evaluating proposals for investments in plan assets
d the average annual net income from an investment expresses as a percentage of the average amount invested
e the length of time necessary to recover the entire cost of an investment from resulting annual net cash flows
f the present value of investment's expected future cash flows
g the amount of the money today that is considered equivalent to the cash flows expected to take place in the future
h the required rate of return used by an investor to discount future cash flows to their present value
i often an investment's final cash flows to be considered in discounted cash flow analysis
1 Accounting
The following are 10 technical accounting terms.
Net present value Capital budgeting Incremental analysis Discount rate Payback period Present value Sunk cost Salvage value Return on average investment Capital budget audit Each of the following statements may (or may not) describe one of these technical terms.
For each statement, indicate the accounting term described, or answer âNoneâ if the statement does not correctly describe any of the terms.
a the examination of difference among revenue, costs, and cash flows under alternative courses of actions
b a cost incurred in the past that cannot be changed as a result of future actions
c the process of planning and evaluating proposals for investments in plan assets
d the average annual net income from an investment expresses as a percentage of the average amount invested
e the length of time necessary to recover the entire cost of an investment from resulting annual net cash flows
f the present value of investment's expected future cash flows
g the amount of the money today that is considered equivalent to the cash flows expected to take place in the future
h the required rate of return used by an investor to discount future cash flows to their present value
i often an investment's final cash flows to be considered in discounted cash flow analysis
Related questions
| Capital Budgeting | |||||||||||
| Glacier Creek Textiles is planning to purchase new manufacturing equipment. The equipment has an acquisition cost of $100,000, an estimated useful life of five years and no residual value. The company uses a 12% rate of return to evaluate capital projects. The cash flows for the five years: | |||||||||||
| Year | Net Cash Outflows | Net Cash Inflows | |||||||||
| Amount invested | |||||||||||
| 0 | ($100,000) | ||||||||||
| 1 | 25,000 | ||||||||||
| 2 | 29,000 | ||||||||||
| 3 | 26,000 | ||||||||||
| 4 | 28,000 | ||||||||||
| 5 | 35,000 | ||||||||||
| Requirements | |||||||||||
| 1. Compute the accounting rate of return. | |||||||||||
| 2. Compute the net present value of the investment using Excel's PV function. | |||||||||||
| 3. Compute the net present value of the investment using Excel's NPV function. | |||||||||||
| 4. Compute the profitability index, rounded to two decimal places. | |||||||||||
| 5. Compute the internal rate of return of the investment using Excel's IRR function. Display to two decimal places, but do not round. | |||||||||||
| Excel Skills | |||||||||||
| 1. Function PV | |||||||||||
| 2. Function NPV | |||||||||||
| 3. Function IRR | |||||||||||
| Evaluate Glacier Creek Textiles' new manufacturing equipment. | ||||||
| Data | ||||||
| Annual discount Rate | 0.12 | |||||
| Cash Flow Year 0 (Cost) | (100,000) | |||||
| Cash Flow Year 1 | 25,000 | |||||
| Cash Flow Year 2 | 29,000 | |||||
| Cash Flow Year 3 | 26,000 | |||||
| Cash Flow Year 4 | 28,000 | |||||
| Cash Flow Year 5 | 35,000 | |||||
| Useful Life in years | 5 | |||||
| Residual value | 0 | |||||
| Requirement 1 | Compute the Accounting Rate of Return | |||||
| Average annual operating income | Average amount invested | Accounting Rate of Return - ARR | ||||
| xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx | xxxxxxxxxxxxxx | xxxxxxxxxxxxxxxxx | ||||
| Requirement 2 | Compute the net present value of the investment using Excel's PV function. | |||||
| Period | Cash Flows | |||||
| 1 | (22,321) | Note: The first period is shown as an example. | ||||
| 2 | xxxxxxxx | |||||
| 3 | xxxxxxxx | |||||
| 4 | xxxxxxxx | |||||
| 5 | xxxxxxxx | |||||
| Present value of net cash flows | xxxxxxxx | Note: PV calculates the present value as a negative amount. | ||||
| Cost of Asset | xxxxxxxx | |||||
| Net Present Value | xxxxxxxx | |||||
| Requirement 3 | Compute the net present value of the investment using Excel's NPV function | |||||
| Present value of net cash flows | xxxxxxxxxx | |||||
| Cost of asset | xxxxxxxxxx | |||||
| Net Present Value | xxxxxxxxxx | |||||
| Requirement 4 | Compute the profitability index, rounded to two decimal places. | |||||
| Profitability index | xxxxxxxxxx | |||||
| Requirement 5 | Compute the internal rate of return of the investment using Excel's IRR function. | |||||
| Display to two decimal places, but do not round. | ||||||
| IRR | xxxxxxxxx | Note: IRR requires a negative amount for the investment. | ||||
Places with xxxxx's are what needs to be filled in, and it's for excel so if I could see the references to which numbers and the formula used that would be helpful. Thank you!!
