MANAGERIAL ACCOUNTING F/MGRS.
MANAGERIAL ACCOUNTING F/MGRS.
5th Edition
ISBN: 9781259969485
Author: Noreen
Publisher: RENT MCG
Question
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Chapter 7, Problem 7.19P
To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To prepare: The contribution format income statement.

Expert Solution
Check Mark

Answer to Problem 7.19P

Income statement is given below:

Explanation of Solution

    S. No.ParticularAmount $Amount $
    A Sales 300,000
    Less: ingredient 20% of sales60,000
    240,000
    B Fixed expense
    1Operating cost including salaries 70,000
    2Rent of premises 42,000
    3Insurance 3,500
    4Utilities 27,000
    5Commission 37,500
    Sum of B180,000
    CNet operating 60,000
To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The simple rate of return promised by the outlet.

Expert Solution
Check Mark

Answer to Problem 7.19P

The simple rate of return promised by the outlet will be 24%

Explanation of Solution

Simple rate of return:

  simplerateofreturn=annualincrementalnetoperatingincomeInitialinvestmentsalvage=$60,000$270,000$18000=0.238=24%

The simple rate of return promised by the outlet will be 24%

To determine

Introduction: The variability between present value of all cash outflow and present value of all cash inflow is known as net present value (NPV). The discount rate at which the net present value is equal to zero is knows as Internal rate of return (IRR). The ratio of income and capital gain is known as simple rate of return.

To compute: The payback period for four years or less will be acquired by Mr. S

Expert Solution
Check Mark

Answer to Problem 7.19P

Net present value is $101,723.019

Explanation of Solution

The annual net cash inflow because the annual cash inflow is not given, it must be computed before the payback period can be determined

Net annual cash flow

  Annualnetcashflow=netoperatingincome+Netcashdeductionsfordepreciation=$60,00018,000=$42,000

The payback period using the annual net cash inflow:

  investmentrequired=Costofnewequipmentsalvagevalueofoldequipment=$270,000$18,000=$252,000

Payback period

  Payback period=InvestmentrequiedAnnualnetcashinflow=$252,000$60,000=4.2years

Payback periods is 4.2 years

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