1 7: Exercises Business LibreTexts

Under this scenario a quick payback may be critical. That way even if the firm has to kill the project early it may still be able to recover most (or all) of their costs. Two, firms that are extremely weak financially may pay extra attention to PP. If the project has a high NPV, but will not start generating positive cash flows for several years it may not be appropriate to firms in financial distress. They need projects that pay off quickly in order to stay in business.

1. This is the business’s second year of operations.
2. ➢  Define asset, liability, and stockholders’ equity.
3. The reason for this can be thought of mathematically or intuitively.
4. The office manager, inexperienced in accounting, prepared the following statement for the business’s most recent month ended August 31, 2023.
5. As long as the projects are not mutually exclusive and there is no crossover problem, IRR and NPV will give the same results.

EXERCISE 1–10 (LO Net Income, Dividends, Shares Issued

Assume that all units were sold for $50 each. Calculate the ending inventory dollar value for each of the following cost allocation methods, using periodic inventory updating. LO 10.2Prepare journal entries to record the following transactions, assuming periodic inventory updating and first-in, first-out (FIFO) cost allocation. The third IRR problem is relatively rare.

With the help of these terms and trigonometric functions, the height and distance of an object can be easily measured. Learn the entire NCERT Solutions for Class 10 Maths Chapter 9 to score more in board exams by understanding the applications of trigonometry in real-life situations. A 1.2 m tall girl spots a balloon moving with the wind in a horizontal line at a height of 88.2 m from the ground. The angle of elevation of the balloon from the eyes of the girl at any instant is 60°. After some time, the angle of elevation reduces to 30° (see Fig. 9.13). Find the distance travelled by the balloon during the interval.

The answer is that it is commonly used in is land a current or long practice (more than 75% use IRR according to the survey mentioned in the Ch. 8). The reason it is so commonly used is twofold. Since many people involved in capital budgeting may not be finance people it is important to be able to communicate the results in a manner that is easy to follow.

Find the time taken by the car to reach the foot of the tower from this point. A 1.5 m tall boy is standing at some distance from a 30 m tall building. The angle of elevation from his eyes to the top of the building increases from 30° to 60° as he walks towards the building. Find the distance he walked towards the building. Below are the December 31, 2023, year-end accounts balances for Mitch’s Architects Ltd.

EXERCISE 1–17 (LO Determining Missing Financial Information

A kite is flying at a height of 60 m above the ground. The string attached to the kite is temporarily tied to a point on the ground. The inclination of the string with the ground is 60°. example t account Find the length of the string, assuming that there is no slack in the string. The angle of elevation of the top of a tower from a point on the ground, which is 30 m away from the foot of the tower, is 30°. Using the table as shown in Figure 1.3 of the text, complete the table for the 18 items listed in May and total each column.

EXERCISE 1–19 (LO4, Equity – What Causes it to Change

Because IRR and NPV make the same accept reject decision, either can be used for independent projects. It is only for mutually exclusive projects where we will have problems due to different rankings of which project is best. Since most of the cash flows in Project B are at the end of the time, they are not greatly affected by the reinvestment rate assumption. We know that this problem is due to reinvestment and not size as the initial investments are the same, but the timing of cash flows is different.

The office manager, inexperienced in accounting, prepared the following statement for the business’s most recent month ended August 31, 2023. Choose Projects B and C as both have positive NPVs. While the PP exceeds T for project B, unless the company has significant financial problems and/or is severely concerned about the project lasting the four years. NPV is the best decision rule, so when the decision rules give conflicting results, go with NPV. The following list shows the various ways in which the accounting equation might be affected by financial transactions.

Jan 10  Purchase equipment by paying cash for $25,000. Jan 1  Issued $100,000 in stock to owners in exchange for cash to start the business. ➢  Define asset, liability, and stockholders’ equity. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . LO 10.5Complete the missing pieces of Delgado Company’s inventory calculations and ratios.

EXERCISE 1–14 (LO Statement of Changes in Equity

Prepare a transaction analysis for the January transactions. Remember to prove the accounting equation at the end. ➢  Identify the three types of activities shown in a statement of cash flows. LO 10.1X Company accepts goods on consignment from C Company, and also purchases goods from P Company during the current month. X Company plans to sell the merchandise to customers during the following month. In each of these independent situations, who owns the merchandise at the end of the current month, and should therefore include it in their company’s ending inventory?

Intuitively we can consider that the IRR tells us the expected return on our initial investment. If the expected return is greater than the required return we should be adding value (and vice-versa). Thus, whenever the IRR is higher than the required return the NPV will be positive and whenever the IRR is less than the required return the NPV will be negative.

The higher IRR for project C is irrelevant and is caused by the different sizes of the projects. Again, when there are conflicts among the rules always follow NPV. A straight highway leads to the foot of a tower. A man standing at the top of the tower observes a car at an angle of depression of 30°, which is approaching the foot of the tower with a uniform speed. Six seconds later, the angle of depression of the car is found to be 60°.

LO 10.5Compute Westtown Company’s (A) inventory turnover ratio and (B) number of days’ sales in inventory ratio, using the following information. LO 10.2Complete the missing piece of information involving the changes in inventory, and their relationship to goods available for sale, for the two years shown. The angles of elevation of the top of a tower from two points at a distance of 4 m and 9 m from the base of the tower and in the same straight line with it are complementary. Prove that the height of the tower is 6 m. Here, the distance of BC is half of CD.

Also, a decision rule that does not meet all four criteria is not necessarily worthless. Instead it means that it has some obvious flaws that must be recognized. From the top of a 7 m high building, the angle of elevation of the top of a cable tower is 60°, and the angle of depression of its foot is 45°. ➢  Give an example from your personal life that illustrates your use of accounting information in reaching a decision. Indicate the effect (and amount) as either (a) none, (b) understated $______, or (c) overstated $______.

It is referred to as the Multiple IRR (or Crossover) Problem and occurs when the cash flows change signs more than once. For each sign change (from negative to positive or from positive to negative) there will be a unique IRR. Therefore, for a project that has two sign changes (crossovers) there are two IRRs. When this happens, the IRR is unreliable and shouldn’t be used. A junior bookkeeper of Adams Ltd. prepared the following incorrect financial statements at the end of its first month of operations. Laberge Sheathing Inc. began operations on January 1, 2023.