Accounting 2
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In a makeorbuy decison, the relevent costs are?
 1. Manufacturing Costs that will be saved
 2. Purchase Price
 3. Opertunity Costs

Manufacturing Costs include?
 1. Direct Materials
 2. Direct Labor
 3. Variable Manufacturing Overhead
 4. Fixed Manufacturing Overhead

Annual Rate of Return
Expected Annual Net Income / Average Investment

Average Investment (Formula)

The annual rate of return decision rule is?
A project is acceptable if its rate of return is greater than managments rate of return

Cash Back Period (Formula)


Net Present Value (Formula)

Present Value of Net Cash Flows (Formula)

The NPV decision rule is?
Accept the project if NPV is zero or positive

The IRR decision rule is?
Acceot the project when IRR is equal to or greater than required rate of return

Steps in determining IRR
 1. Compute IRR factor:
 Capital Investment/Cash Flow=IRR Factor
 2. Use the factor and the present value of an annuity of 1 table to find IRR