Assignment: Accounting Verbiage
Part A
In a Word document, respond to the following:
a. Explain the net present value (NPV) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using NPV?
b. Explain the payback period statistic. What is the acceptance benchmark when using the payback period statistic?
c. Describe the internal rate of return (IRR) as a method for deciding the desirability of a capital budgeting project. What is the acceptance benchmark when using IRR?
d. Describe the modified internal rate of return (MIRR) as a method for deciding the desirability of a capital budgeting project. What are MIRR's strengths and weaknesses?
Part B
In either a Word document or Excel spreadsheet, complete the following problems.
a. You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
b. If you choose to solve the problems algebraically, be sure to show your computations.
c. If you use a financial calculator, show your input values.
d. If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
a. Based on the cash flows shown in the chart below, compute the NPV for Project Huron. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project.
Project Huron
Time 0 1 2 3 4
Cash Flow $12,000 $2,360 $4,390 $1,520 $3,300
b. Based on the cash flows shown in the chart below, compute the IRR and MIRR for Project Erie. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project.
Project Erie
Time 0 1 2 3 4 5
Cash Flow $12,000 $2,360 $4,390 $1,520 $980 $1,250
Format your assignment according to the give formatting requirements:
a. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
b. The response also includes a cover page containing the title of the assignment, the course title, the student's name, and the date. The cover page is not included in the required page length.
c. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.