# acc_202_week_2_problem_12_16_12_17..

May 17th, 2015
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acc_202_week_2_problem_12_16_12_17..

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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

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