Need Accounting Assistance with capital budgeting

Nov 25th, 2015
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.      
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.
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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School: Boston College

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Nov 25th, 2015
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