Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Question
Chapter 12, Problem 13F15
NPV is computed by deducting initial investment amount from the present value.
Project’s actual net present value will be calculated in the following way, when variable expenses changes to 45%:
Computation of annual cash inflow when variable expenses changed to 45%:
To determine
Particulars Amount ($) Sales 2,735,000 Less: Variable expenses 45% 1,230,750
Contribution margin 1,504,250 Less: Fixed expenses 735,000
Earnings before depreciation , interest and taxes 769,250 Less: Depreciation 595,000
Earnings after depreciation or EBIT 174,250 Add: Depreciation 595,000
Annual cash inflow 769,250
Particulars | Amount ($) |
Sales | 2,735,000 |
Less: Variable expenses 45% | 1,230,750
|
Contribution margin | 1,504,250 |
Less: Fixed expenses | 735,000
|
Earnings before | 769,250 |
Less: Depreciation | 595,000
|
Earnings after depreciation or EBIT | 174,250 |
Add: Depreciation | 595,000
|
Annual | 769,250
|
Computation of actual
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Cardinal Company is considering a five-year project that would require a $2,755,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 14%. The project would provide net operating income in each of five years as follows:
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$ 2,875,000
Variable expenses
1,124,000
Contribution margin
1,751,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$ 721,000
Depreciation
551,000
Total fixed expenses
1,272,000
Net operating income
$ 479,000
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
7. What is the project’s payback period? (Round your answer to 2 decimal places.)
Cardinal Company is considering a five-year project that would require a $2,755,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 14%. The project would provide net operating income in each of five years as follows:
Sales
$ 2,875,000
Variable expenses
1,124,000
Contribution margin
1,751,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$ 721,000
Depreciation
551,000
Total fixed expenses
1,272,000
Net operating income
$ 479,000
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
Foundational 14-8 (Algo)
8. What is the project’s simple rate of return for each of the five years? (Round your answer to 2 decimal places.)
Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 18%. The project would provide net operating income in each of five years as follows:
Sales
$
2,865,000
Variable expenses
1,015,000
Contribution margin
1,850,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$
750,000
Depreciation
591,000
Total fixed expenses
1,341,000
Net operating income
$
509,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
Chapter 12 Solutions
Introduction To Managerial Accounting
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