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21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
Page 18
31) A company is evaluating 3 possible investments.
Each uses straight-line depreciation.
See data below:
Project A
Project B
Project C
Investment
$400,000
$20,000
$100,000
Salvage value
$0
$2,000
$5,000
Net cash flows:
Year 1
$100,000
$10,000
$40,000
Year 2
$100,000
$8,000
$25,000
Year 3
$100,000
$5,000
$30,000
Year 4
$100,000
$3,000
$10,000
Year 5
$100,000
$0
$0
What is the rate of return for Project A?
A) 50%
B) 4%
C) 16%
D) 10%
Answer:
D
Explanation:
D) Calculations:
($500,000 - $400,000)/5 = $20,000
$400,000/2 = $200,000
$20,000/$200,000 = 10%
Diff: 3
LO:
21-2
EOC Ref:
E21-17
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
18
Copyright © 2012 Pearson Education
Page 19
32) A company is evaluating 3 possible investments.
Each uses straight-line depreciation.
See data below:
Project A
Project B
Project C
Investment
$400,000
$20,000
$100,000
Salvage value
$0
$2,000
$5,000
Net cash flows:
Year 1
$100,000
$10,000
$40,000
Year 2
$100,000
$8,000
$25,000
Year 3
$100,000
$5,000
$30,000
Year 4
$100,000
$3,000
$10,000
Year 5
$100,000
$0
$0
What is the rate of return for Project B?
A) 50%
B) 4%
C) 18%
D) 10%
Answer:
C
Explanation:
C) Calculations:
($26,000 - $18,000)/4 = $2,000
($20,000 + $2,000)/2 = $11,000
$2,000/$11,000 = 18%
Diff: 3
LO:
21-2
EOC Ref:
E21-17
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
19
Copyright © 2012 Pearson Education
Page 20
33) A company is evaluating 3 possible investments.
Each uses straight-line depreciation.
See data below:
Project A
Project B
Project C
Investment
$400,000
$20,000
$100,000
Salvage value
$0
$2,000
$5,000
Net cash flows:
Year 1
$100,000
$10,000
$40,000
Year 2
$100,000
$8,000
$25,000
Year 3
$100,000
$5,000
$30,000
Year 4
$100,000
$3,000
$10,000
Year 5
$100,000
$0
$0
What is the rate of return for Project C?
A) 5%
B) 4%
C) 18%
D) 10%
Answer:
A
Explanation:
A) Calculations:
($105,000 - $95,000)/4 = $2,500
($100,000 + $5,000)/2 = $52,500
$2,500/$52,500 =5%
Diff: 3
LO:
21-2
EOC Ref:
E21-17
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
20
Copyright © 2012 Pearson Education
Page 21
Learning Objective 21-3
1) If Teddy Godfried invests $400,000 today at a rate of 9% compounding yearly, his investment will grow to
$1,000,000 in 10 years.
Future
Value of
$1
4%
5%
6%
7%
8%
9%
1
1.040
1.050
1.060
1.070
1.080
1.090
2
1.082
1.103
1.124
1.145
1.166
1.188
3
1.125
1.158
1.191
1.225
1.260
1.295
4
1.170
1.216
1.262
1.311
1.360
1.412
5
1.217
1.276
1.338
1.403
1.469
1.539
6
1.265
1.340
1.419
1.501
1.587
1.677
7
1.316
1.407
1.504
1.606
1.714
1.828
8
1.369
1.477
1.594
1.718
1.851
1.993
9
1.423
1.551
1.689
1.838
1.999
2.172
10
1.480
1.629
1.791
1.967
2.159
2.367
Answer:
FALSE
Explanation:
Calculations:
2.367 × $400,000 = $946,800
Diff: 2
LO:
21-3
EOC Ref:
S21-8
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
21
Copyright © 2012 Pearson Education
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