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Chapter 26: Q4RQ (page 1463)

What are post-audits? When are they conducted?

Short Answer

Expert verified

A post-audit compares the real capital investment comes out with the expected results which should be achieved on a standard basis.

Step by step solution

01

Meaning of Post-Audits

A post-audit is supposed to compare the results of actual capital speculation with those anticipated. Companies can use the comparisons to see if their speculation is performing as anticipated and should be supported, or if they should end the project and offer assets.

02

When post-audit conducted.

Post-audits should be attempted regularly all through the project's life cycle, not as it were at the conclusion. Managers can make changes to projects over their life expectancy much obliged to intermediate post-audits. Managers moreover use post-audit input to make strides and forecasts for future projects. Managers will be more slanted to supply practical gauges with their capital investment demands in case they anticipate scheduling post-audits.

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Most popular questions from this chapter

How is the present value of an annuity determined?

Hayes Company is considering two capital investments. Both investments have an initial cost of \(10,000,000 and total net cash inflows of \)17,000,000 over 10 years. Hayes requires a 12% rate of return on this type of investment. Expected net cash inflows are as follows:

Year

Plan Alpha

Plan Beta

1

\( 1,700,000

\) 1,700,000

2

1,700,000

2,300,000

3

1,700,000

2,900,000

4

1,700,000

2,300,000

5

1,700,000

1,700,000

6

1,700,000

1,600,000

7

1,700,000

1,200,000

8

1,700,000

800,000

9

1,700,000

400,000

10

1,700,000

2,100,000

Total

\( 17,000,000

\) 17,000,000

Requirements

  1. Use Excel to compute the NPV and IRR of the two plans. Which plan, if any, should the company pursue?

  2. Explain the relationship between NPV and IRR. Based on this relationship and the company’s required rate of return, are your answers as expected in Requirement 1? Why or why not?

  3. After further negotiating, the company can now invest with an initial cost of $9,500,000 for both plans. Recalculate the NPV and IRR. Which plan, if any, should the company pursue?

Describe the capital budgeting process.

How is ARR calculated?

Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose):

1. \(7,250 per year at the end of each of the next eight years

2. \)49,650 (lump sum) now

3. $98,650 (lump sum) eight years from now

Requirements

1. Calculate the present value of each scenario using an 8% discount rate. Which scenario yields the highest present value? Round to nearest whole dollar.

2. Would your preference change if you used a 10% discount rate?
See all solutions

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