Answered: Illustrate the concept of present-worth…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 12MC: Which of the following does nor assign a value to a business opportunity using time-value...

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Illustrate the concept of present-worth analysis based on cash flow
equivalence along with the payback period?

Expert Solution

Step 1

The concept of present-worth analysis based on cash flow equivalence along with the payback period. Important results observed are :-

Current value is a measure of equity when the cash flow of a project is reduced to a single current value. It is probably the most effective analysis method we can use to determine the economic viability of a project. Other methods of analysis, built on a sound understanding of current values.
MARR, or the low interest rate, is the interest rate on which a company can always earn or borrow money. It is usually prescribed by management and is the standard on which PW analysis is performed.
Revenue projects are projects where income depends on project choice. Service projects projects revenue remain the same, regardless of which project is selected.

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