PV Index And IRR – Internal Rate of Return – Accounting

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Present Value (PV) Index And Internal Rate of Return (IRR) – Midterm Exam

The key terms in these Accounting chapters include Internal Rate of Return (IRR), PV Index (Present Value Index), Average Operating Cash, Net Present Value (NPV), Payback Period, Present Value of Inflow And Outflows, Periodic Inventory System. PV Index And IRR – Midterm Exam – Accounting & Finance.


What is the PV index of the freezer?

1.02


Which of the following are true regarding the calculation of the internal rate of return? (Select all that apply.)

The factor is calculated by dividing the present value of the purchase price by the average operating cash flows per year.

The factor is calculated by dividing the average operating cash flows per year by the present value of the purchase price

The IRR for the freezer is close to 10%

The IRR for the stand is close to 10%

IRR for the freezer is close to 9%

The IRR for the stand is close to 9%


The freezer has a shorter payback period than the stand.

True

False

Which of the following is true regarding the calculation of net present value?

NPV Net present value = present value of outflows – present value of inflows

Net present value = inflows – outflows

NPV Net present value = outflows – inflows

Net present value = present value of inflows – present value of outflows


On September 12, Vander Company sold merchandise in the amount of $7,100 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $5,300. Vander uses the periodic inventory system and the gross method of accounting for sales. The journal entry or entries that Vander will make on September 12 is:

Sales7,100 
Accounts receivable 7,100
Sales7,100 
Accounts receivable 7,100
Cost of goods sold5,300 
Merchandise Inventory 5,300
Accounts receivable7,100 
Sales 7,100

Correct

Accounts receivable7,100 
Sales 7,100
Cost of goods sold5,300 
Merchandise Inventory 5,300
Accounts receivable5,300 
Sales 5,300

What is the PV index of the freezer?

1.02


Which of the following are true regarding the calculation of the internal rate of return? (Select all that apply.)

The factor is calculated by dividing the present value of the purchase price by the average operating cash flows per year.

The factor is calculated by dividing the average operating cash flows per year by the present value of the purchase price

The IRR for the freezer is close to 10%

The IRR for the stand is close to 10%

IRR for the freezer is close to 9%

The IRR for the stand is close to 9%


The freezer has a shorter payback period than the stand.

True

False

Which of the following is true regarding the calculation of net present value?

NPV Net present value = present value of outflows – present value of inflows

Net present value = inflows – outflows

NPV Net present value = outflows – inflows

Net present value = present value of inflows – present value of outflows


A company has two different investment opportunities, both requiring an initial payment of $150,000.  The company’s desired rate of return is 10%.

Project AProject B
Year 1$100,000$40,000
Year 2$100,000$170,000

What is the NPV of Project A?

23,553.72


A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $24,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $675. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Bad Debts Expense24,750 
Allowance for Doubtful Accounts 24,750
Bad Debts Expense24,075 
Allowance for Doubtful Accounts 24,075
Bad Debts Expense25,425 
Allowance for Doubtful Accounts 25,425

Correct

Accounts Receivable24,750 
Bad Debts Expense675 
Sales 25,425
Accounts Receivable25,425 
Allowance for Doubtful Accounts 25,425
Explanation
    
Desired balance in allowance account:$24,750credit
Current balance: 675debit
Required: adjustment to allowance$25,425credit

Which of the following are true regarding the calculation of the internal rate of return? (Select all that apply.)

The factor is calculated by dividing the present value of the purchase price by the average operating cash flows per year.

The factor is calculated by dividing the average operating cash flows per year by the present value of the purchase price

The IRR for the freezer is close to 10%

The IRR for the stand is close to 10%

IRR for the freezer is close to 9%

The IRR for the stand is close to 9%


The freezer has a shorter payback period than the stand.

True

False


Which of the following is true regarding the calculation of net present value?

NPV Net present value = present value of outflows – present value of inflows

Net present value = inflows – outflows

NPV Net present value = outflows – inflows

Net present value = present value of inflows – present value of outflows


What is the PV index of the freezer?

1.02


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