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Horngren's Financial & Managerial Accounting, The Managerial Chapters 6th Edition

Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)

Book Edition6th Edition
Author(s)Miller-Nobles, Mattison, Matsumura
PublisherPearson Higher Education
How do the Payback and Accounting Rate of Return Methods Work?
What is the Time Value of Money?
How do Discounted Cash Flow Methods Work?

Chapter 26, How do the Payback and Accounting Rate of Return Methods Work?, Decisions, Exercise 01

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Here is a tip:

Scouting for prospect suppliers or providers appropriate for the requirement in advance should be part of the strategy.


As part of the capital investment evaluation process, the suggested action for BDB to take is to coordinate with a few more external vendors where quality and cost implications shall be compared. Notwithstanding the fact that vendors should be required to evaluate the equipment first hand, competent estimates will be provided for capital budgeting requirements.


In certain cases, the vendors would take advantage of the opportunity to justify that the services they are offering are the best and that no other providers can serve the way they do. As such, all information than will be given by the vendors will be taken as is, especially if the department representative does not have any experience handling such concerns.


BDB should consider organizing a separate technical group to do the evaluation so that all recommendations made by the vendor can be reviewed. After such, BDB can further review the proposal. The proposal should include all other facts, such as the total costs needed, required manpower, revenue projections, and the estimated net profits.

Verified Answer

Gather a few more external proposals for comparative purposes

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