《会计学原理教学资料》Chapter_25.pptVIP

End of Chapter 25. * The accounting rate of return has just as many shortcomings as the payback period method. In addition to ignoring the time value of money, the accounting rate of return is affected by the choice of depreciation methods and potential variations in income from year to year. * Part I. Decisions impacting operations over a long period should recognize the time value of money. Investments that promise early returns are preferable to those that promise later returns because of the time value of money. Net present value is the first capital budgeting tool that we will study that considers the time value of money. We will use cash flows with the net present value method instead of accounting income. Part II. Net present value is the present value of future cash inflows less the cost of the investment. We find the present value of future cash flows using an interest rate referred to as the required rate of return. The process of computing the present value of future cash flows is called discounting future cash flows. Part III. FasTrac’s new machine will cost $16,000. It has an eight-year useful life, zero salvage value, and promises annual net cash flows of $4,100. FasTrac requires a 12 percent compounded annual return on its investments. * Part I. To find the present value of a future cash flow, we multiply the cash flow by the present value of one dollar for 12 percent and the year in which the cash flow occurs. You will find these interest factors in Table B.1 of Appendix B of your textbook. Part II. Did you find the 12 percent interest factors in Appendix B for each year? Part III. To find the net present value, we sum the present values for each year and then subtract the cost of the new machine from the sum. The sum of present values is greater than the cost of the investment, resulting in a net present value of $4,367 dollars. A positive net present value indicates that this project earns more than 12 percent on the investment