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Chapter 21
1. A project dimension
2. An accounting-period dimension
Project D
Project C
Project B
Project A
2002 2003 2004 2005 2006
Compound Growth,
Year 5: $1.338
5 periods at 6%
Year 4: $1.262
Year 3: $1.91
Year 2: $1.124
Year 1: $1.06
Year 0: $1.00
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 21 - 12
Discounted Cash Flow
0 1 2 3
$(250,000) $125,000 $130,000 $115,000
Investment
= Expected annual net cash inflow
× PV annuity factor
Investment
÷ Expected annual net cash inflow
= PV annuity factor
Payback = 1 year
+ $ 90,000 needed to complete recovery
÷ 180,000 net cash inflow in Year 2
= 1 year + 0.5 year
= 1.5 years or 1 year and 6 months
New equipment:
Current book value $225,000
Current disposal price is irrelevant
Terminal disposal price (5 years) 0
Annual depreciation $ 45,000
Working capital $ 15,000