Need Accounting Assistance with capital budgeting

Nov 25th, 2015
Anonymous
Category:
Accounting
Price: $10 USD

Question description

Consider the following statements about capital budgeting.
a. _______ is (are) more appropriate for long-term investments.          
b. _______ highlights risky investments.              
c. _______ shows the effect of the investment on the company's accrual-based income.    
d. _______ is the interest rate that makes the NPV of an investment equal to zero.      
e. In capital rationing decisions, management must identify the discount rate when the _______ method is used.
f. _______ provides management with information on how fast the cash invested will be recouped.  
g. _______ is the rate of return, using discounted cash flows, a company can expect to earn by investing in the asset.
h. _______ does not consider the asset's profitability.          
i. _______ uses accrual accounting rather than net cash inflows in its computation.      
                   
Requirement:                  
1. Fill in each statement with the appropriate capital budgeting method: Payback period, ROR, NPV, or IRR.
Water Planet is considering purchasing a water park in Atlanta, Georgia, for $1,870,000. The new facility will generate annual net cash inflows of $460,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 10% on investments of this nature.
                             
Requirements:                            
1. Compute the payback period, the ROR, the NPV, the IRR, and the profitability index of this investment.            
2. Recommend whether the company should invest in this project.                  

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