Chapter 12 – Weygandt Managerial 7e
Challenge Exercises Solutions
Solution
CE12-1
(a) (1) Cash payback period = $390,000 / $85,000 = 4.59 years
(2) Annual rate of return:
(b) Net present value
Present value of net cash flows
$85,000 x 4.6288 = $393,448
(c) (1) Cash payback period = $400,000 / $80,000 = 5 years
(2) Annual rate of return:
(3) Net present value
Present value of net cash flows
$80,000 x 5.20637 = $416,509.60
$15,000 x 0.58349 = __ 8,752.35
(4) Carper should choose the second investment. Although it has a slower payback, it has a
Solution
CE 12-2
(a) Machine A
Net cash flow = $30,000 – $7,500 = $22,500
Net present value
Present value of net cash flows
$22,500 x 6.71008 = $150,976.80
Angler Corp. should purchase Machine A. It has a higher net present value and it has a higher
(b) (1) Machine C
Net cash flow = $45,000 – $10,000 = $35,000
Net present value
Present value of net cash flows
$35,000 x 6.71008 = $234,852.80
$30,000 x 0.46319 13,895.70
(2) Rank based on Net Present Value:
#1 Machine A………….. $37,726.80
CE 12-2 Solution (cont.)
(3) Rank based on Profitability Index
#1 Machine A………..1.33
#2 Machine B………..1.12
#3 Machine C……….. .99