ACC 202 Week 5 Assignment 2 Ch.16 P16-17,16-18,16-19

Apr 3rd, 2015
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ACC 202 Week 5 Assignment 2 Ch.16 P16-17,16-18,16-19

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USE AS GUIDE ONLYProblem 16-17a.Alternative 1Alternative 2Revenues$5,940 $8,280 Operating expenses(900)(2,430)Depreciation expense(2,700)(2,520)Income before taxes2,340 3,330 Tax expense @ 20%(468)(666)Net income1,872 2,664 Add back depreciation 2,700 2,520 Cash flow per year$4,572 $5,184 Alternative 1Alternative 2Payback PeriodPayback Period$8,100$10,080= 1.77 years= 1.94 years$4,572$5,184Unadjusted rate of return:Unadjusted rate of return:$1,872$2,664= 46.22%= 52.86%$4,050$5,040 b.Because of its longer useful life and its higher unadjusted rate of return, the second alternative appears to be a better choice. However, if an investor desires the quickest recovery of funds, Alternative 1 does provide a quicker payback. Neither analytical technique considers the time value of money. There is no definitive right or wrong answer to this question. The answer depends on the investor's preference of a quick payback versus a higher rate of return.Problem 16-18a.Project ACash InflowsTable ValuePresent ValueAnnual cash inflows$31,487x3.312127*=$104,288.94Cash outflowsCost of investment(100,000.00)Net present value$ 4,288.94Project BCash InflowsTable ValuePresent ValueAnnual cash inflows$13,169x3.312127*=$43,617.40Cash outflowsCost of investment(40,000.00)Net present value$ 3,617.40*Table 2, n

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