The Following Values Have Been Computed for Various Independent Projects

question 340

Multiple Choice

The following values have been computed for various independent projects which have a required payback period of 3 years, a required discount rate of 14.5 %, and a required accounting return of 11 %. Which one of these values indicates an accept decision?

• A) Net present value of ($1,200).
• B) Accounting rate of return of 10 %.
• C) Profitability index of 1.02.
• D) Internal rate of return of 13.6 %.
• E) Payback period of 3.2 years.

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Definitions:

Capital Budgeting

The process of evaluating and selecting long-term investments that are in alignment with the firm's goal of shareholder value maximization.

International Accounting Standards

A set of accounting standards stating how particular types of transactions and events should be reported in financial statements, issued by the IFRS Foundation.

IAS 17

International Accounting Standard 17, which outlines the accounting policies and disclosures regarding leases for both lessees and lessors.

Capital Lease

This is a lease agreement that is classified as a purchase by the lessee, allowing the lessee to record the leased asset as owned on their balance sheet.