BUS-FP4061 - Managerial Accounting Principles
Assessment 9: Making the Right Decision Worksheet
Problems 1–4
Complete problems 1–4 based on the following scenario.
Megacorp needs to decide which of two new projects to invest in.
· Project A is an investment in new machinery that will cost $750,000
and has a four-year life with no salvage value.
· Project B is an investment in new machinery that will cost $750,000
and has a three-year life with no salvage value.
Using straight-line depreciation, Megacorp predicts that the two projects
will yield the following annual results, with cash flows occurring evenly
throughout the year.
Predicted Annual Results
Project A ($)
Sales
700,000
Expenses: Direct materials
98,000
140,000
Direct labor
Overhead including depreciation
252,000
Selling and administrative expenses
50,000
540,000
Total expenses
Pretax income
160,000
Income taxes (30%)
48,000
Net income
112,000
Complete the problems below. Add answers in this template and show your work. Problem 1 Compute the annual expected net cash flows for each project.
Project A Problem 2 Determine the payback period for each project. Problem 3 Compute the accounting rate of return for each project. Problem 4 Determine the net present value using 6% as the discount rate. ($) Input values
Company name
Tax rate
Discount rate
Investment
Life of machinery (in years)
Salvage value
Predicted Annual Results
Project B ($)
560,000
70,000
84,000
252,000
50,000
456,000
104,000
31,200
72,800 Sales
Expenses: Direct materials
Direct labor
Overhead including depreciation
Selling and administrative expenses
Total expenses
Pretax income
Income taxes (30%)
Net income
Present value of $1 at 6% annuity for 4 years
Present value of $1 at 6% annuity for 3 years Megacorp
30%
6%
Project A
Project B
$ 750,000 $
750,000
4
3
four
three
$0
$0 Predicted Annual Results
Project A ($) Project B ($)
700,000
560,000
98,000
70,000
140,000
84,000
ng depreciation
252,000
###
istrative expenses
50,000
###
540,000
456,000
160,000
104,000
48,000
31,200
112,000
72,800 nuity for 4 years
nuity for 3 years 3.4651
2.6730

 

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