• Depreciation is the only adjustment difference between accountingprofit and cash flows for each project.Required:(a)What is meant by 'mutually exclusive projects'?(b)Wivenhoe Ltd's managers sought your advice regarding which of theprojects to select.(i)Calculate for each project the payback period (Assume thatcash flows will occur evenly throughout the year).(ii)Advise Wivenhoe Ltd's managers as which project to selectin (b) (i) above.(c)For Project A: calculate the breakeven point in sales revenue for year4.(d)(i)Calculate the NPV of Project A using a cost of capital of 9%.(Assume that all cash flows occur at the year-end).(ii)Comment on the viability of the project.(e)Calculate the unit cost under marginal costing and absorption costingfor the second year of project A. 5,000 units of the product are expectedto be produced and sold. Wivenhoe Ltd wants to expand its market and is considering two mutuallyexclusive projects as follows:Project A: This project requires an initial investment of £178,000 with a four-year life span. Wivenhoe Ltd has already paid £20,000 to a market researchcompany. Forecasted sales and operating expenses are shown in the tablebelow:Year 1Year 2Year 3Year 4Sales revenue (£)260,000290,000300,000280,000Material cost (£)100,000120,000115,000118,000Labour cost (£)60,00072,00052,00066,000Other fixed cost (not10,00010,00018,00018,000including depreciation)Project B: This project requires an initial investment of £480,000 with a four-year life span. The forecasted annual accounting profit is £80,000 over fouryears.The following information applies to both projects:• Residual value at the end of the economic life of each project is nil,and straight line depreciation applies.• All sales are expected to be cash sales, and operation expenses arepaid for in cash as and when incurred.

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(a) What is meant by 'mutually exclusive projects'? (b) Wivenhoe Ltd's managers sought your advice regarding which of the projects to select. (i) Calculate for each project the payback period (Assume that cash flows will occur evenly throughout the year). (ii) Advise Wivenhoe Ltd's managers as which project to select in (b) (i) above. (c) For Project A: calculate the breakeven point in sales revenue for year

(a) What is meant by 'mutually exclusive projects'? (b) Wivenhoe Ltd's managers sought your advice regarding which of the projects to select. (i) Calculate for each project the payback period (Assume that cash flows will occur evenly throughout the year). (ii) Advise Wivenhoe Ltd's managers as which project to select in (b) (i) above. (c) For Project A: calculate the breakeven point in sales revenue for year

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
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