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Accounting 11 Activity 1

This document contains an activity with 10 multiple choice questions about financial analysis concepts like payback period, net income, accounting rate of return, discounted payback period, and capital budgeting. The activity includes questions about analyzing cash flows for an investment made by a design firm and a machine purchase by another company. It also asks to calculate financial metrics for two potential projects and determine which one should be accepted based on a cost of capital. Scoring rubrics are provided for problem solving and short answer questions.

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Ma Trixia Alexandra Cuevas
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602 views1 page

Accounting 11 Activity 1

This document contains an activity with 10 multiple choice questions about financial analysis concepts like payback period, net income, accounting rate of return, discounted payback period, and capital budgeting. The activity includes questions about analyzing cash flows for an investment made by a design firm and a machine purchase by another company. It also asks to calculate financial metrics for two potential projects and determine which one should be accepted based on a cost of capital. Scoring rubrics are provided for problem solving and short answer questions.

Uploaded by

Ma Trixia Alexandra Cuevas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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BM1915

NAME: DATE: SCORE:

ACTIVITY
Answer the following items on a separate sheet of paper. Show your computations. (10 items x 5
points)
The management of Almario, Inc., an architectural design firm, is considering an investment with the following
cash flows:
Year Investments Cash Inflows
1 P15,000 P1,000
2 8,000 2,000
3 2,500
4 4,000
5 5,000
6 6,000
7 5,000
8 4,000
9 3,000
10 2,000

1. Determine the payback period of the investment.


2. Would the payback period be affected if the cash inflow in the last year were several times as large?
Why?

Houston Company is planning to spend P60,000 for a machine which will be depreciated on a straight-line
basis over ten-year period. The machine will generate additional cash revenues of P12,000 a year. Houston
will incur additional costs except for depreciation. The income tax rate is 35%.
3. Determine the net income after tax.
4. Compute the accounting rate of return (ARR).
5. Determine the after-tax annual cash inflow.
6. Compute the payback period.
7. Compute the payback reciprocal.

Assume the following proposals were available to ABC Company:


Project X Project Y
Cost of investment P5,000,000 P5,000,000
Net cash inflows
Year 1 2,000,000 3,500,000
Year 2 2,000,000 2,500,000
Year 3 2,000,000 1,500,000
Year 4 2,000,000 500,000

8. Compute the discounted payback period for project X using a cost of capital of 10%.
9. Compute the discounted payback period for project Y using a cost of capital of 10%.
10. Assuming the projects are mutually exclusive, which project should be accepted? Why?

Rubric for problem solving:


Performance Indicators Points
Correct accounts and amounts used 3
Computed final amounts are correct/balanced 2
Total 5

Rubric for short answer:


CRITERIA PERFORMANCE INDICATORS POINTS
Content Provided pieces of evidence, supporting details, and 3
factual scenarios
Organization of ideas Expressed the points in clear and logical arrangement 2
of ideas
TOTAL 5

11 Activity 1 *Property of STI


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