Accounting 2

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  1. In a make-or-buy decison, the relevent costs are?
    • 1. Manufacturing Costs that will be saved
    • 2. Purchase Price
    • 3. Opertunity Costs
  2. Manufacturing Costs include?
    • 1. Direct Materials
    • 2. Direct Labor
    • 3. Variable Manufacturing Overhead
    • 4. Fixed Manufacturing Overhead
  3. Annual Rate of Return
    Expected Annual Net Income / Average Investment
  4. Average Investment (Formula)
    Image Upload 1
  5. The annual rate of return decision rule is?
    A project is acceptable if its rate of return is greater than managments rate of return
  6. Cash Back Period (Formula)
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  7. Cash Flow (Formula)
    Image Upload 3
  8. Net Present Value (Formula)
    Image Upload 4
  9. Present Value of Net Cash Flows (Formula)
    Image Upload 5
  10. The NPV decision rule is?
    Accept the project if NPV is zero or positive
  11. The IRR decision rule is?
    Acceot the project when IRR is equal to or greater than required rate of return
  12. 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
Card Set
Accounting 2
Incremental analyis & Capital budgeting
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