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21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
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21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
##### Page 15
27) Wasson Corporation is considering an investment project costing \$520,000. The project is estimated to have an
eight-year life, generate annual cash flows of \$120,000, and have a salvage value of \$40,000 after eight years. What
is the project's payback period?
A) 2.8 years
B) 4.3 years
C) 4 years
D) 6.5 years
B
Explanation:
B) Calculations: \$520,000/\$120,000 = 4.3
Diff: 2
LO:
21-2
EOC Ref:
E21-16
AACSB:
Analytic Skills
Critical Thinking
AICPA Functional:
Measurement
28) 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 payback period for Project A?
A) 3.5 years
B) 4.5 years
C) 4.0 years
D) 5.0 years
C
Explanation:
C) Calculations: \$400,000/\$100,000 = 4
Diff: 1
LO:
21-2
EOC Ref:
E21-16
AACSB:
Analytic Skills
Critical Thinking
AICPA Functional:
Measurement
15

##### Page 16
29) 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 payback period for Project B?
A) 3.5 years
B) 2.5 years
C) 2.4 years
D) 3.0 years
C
Explanation:
C) Calculations:
\$20,000 - \$10,000 - \$8,000 = \$2,000
\$2,000/\$5,000 = 0.4
2 + 0.4 = 2.4
Diff: 1
LO:
21-2
EOC Ref:
E21-16
AACSB:
Analytic Skills
Critical Thinking
AICPA Functional:
Measurement
16

##### Page 17
30) 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 payback period for Project C?
A) 3.5 years
B) 2.5 years
C) 2.4 years
D) 3.0 years
A
Explanation:
A) Calculations:
\$40,000 + \$25,000 + \$30,000 = \$95,000
\$5,000/\$10,000 = 0.5
3 + 0.5 = 3.5
Diff: 1
LO:
21-2
EOC Ref:
E21-16
AACSB:
Analytic Skills
Critical Thinking
AICPA Functional:
Measurement
17

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