### 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:

Sales | 7,100 | |

Accounts receivable | 7,100 |

Sales | 7,100 | |

Accounts receivable | 7,100 | |

Cost of goods sold | 5,300 | |

Merchandise Inventory | 5,300 |

Accounts receivable | 7,100 | |

Sales | 7,100 |

**Correct**

Accounts receivable | 7,100 | |

Sales | 7,100 | |

Cost of goods sold | 5,300 | |

Merchandise Inventory | 5,300 |

Accounts receivable | 5,300 | |

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 A | Project 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 Expense | 24,750 | |

Allowance for Doubtful Accounts | 24,750 |

Bad Debts Expense | 24,075 | |

Allowance for Doubtful Accounts | 24,075 |

Bad Debts Expense | 25,425 | |

Allowance for Doubtful Accounts | 25,425 |

**Correct**

Accounts Receivable | 24,750 | |

Bad Debts Expense | 675 | |

Sales | 25,425 |

Accounts Receivable | 25,425 | |

Allowance for Doubtful Accounts | 25,425 |

**Explanation**

Desired balance in allowance account: | $ | 24,750 | credit |

Current balance: | 675 | debit | |

Required: adjustment to allowance | $ | 25,425 | credit |

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**