Business Npv Aar Payback
Question Description
| 3. | Calculating Payback. Global Toys Inc., imposes a payback cutoff of three years for its international investment projects. If the company has the following two projects available, should it accept either of them? |
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | −$55,000 | −$ 95,000 |
| 1 | 19,000 | 18,000 |
| 2 | 27,000 | 26,000 |
| 3 | 24,000 | 28,000 |
| 4 | 9,000 | 260,000 |
| LO 2 | 4. | Calculating AAR. You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $14 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,253,000, $1,935,000, $1,738,000, and $1,310,000 over these four years, what is the project’s average accounting return (AAR)? |
| LO 3 | 5. | Calculating IRR. A firm evaluates all of its projects by applying the IRR rule. If the required return is 11 percent, should the firm accept the following project? |
| Year | Cash Flow |
| 0 | −$153,000 |
| 1 | 78,000 |
| 2 | 67,000 |
| 3 | 49,000 |
| LO 4 | 6. | Calculating NPV. For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9 percent, should the firm accept this project? What if the required return was 21 percent? |
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