question archive Considerthe following statements about capital budgeting
Subject:AccountingPrice: Bought3
Considerthe following statements about capital budgeting.a. _______ is (are) moreappropriate for long-term investments. b. _______ highlights riskyinvestments. c. _______ shows the effect ofthe investment on the company's accrual-based income. d. _______ is the interest ratethat makes the NPV of an investment equal to zero. e. In capital rationingdecisions, management must identify the discount rate when the _______ methodis used.f. _______ provides managementwith information on how fast the cash invested will be recouped. g. _______ is the rate ofreturn, using discounted cash flows, a company can expect to earn byinvesting in the asset.h. _______ does not considerthe asset's profitability. i. _______ uses accrualaccounting rather than net cash inflows in its computation. Requirement: 1. Fill in each statement withthe appropriate capital budgeting method: Payback period, ROR, NPV, or IRR.Water Planet is considering purchasing a water park in Atlanta,Georgia, for $1,870,000. The new facility will generate annual net cashinflows of $460,000 for eight years. Engineers estimate that the facilitywill remain useful for eight years and have no residual value. The companyuses straight-line depreciation, and its stockholders demand an annual returnof 10% on investments of this nature. Requirements: 1. Compute the payback period,the ROR, the NPV, the IRR, and the profitability index of this investment. 2. Recommend whether thecompany should invest in this project.