GEN COMBO LOOSELEAF INTRODUCTION TO MANAGERIAL ACCOUNTING; CONNECT AC
GEN COMBO LOOSELEAF INTRODUCTION TO MANAGERIAL ACCOUNTING; CONNECT AC
8th Edition
ISBN: 9781260259179
Author: BREWER
Publisher: MCG
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Chapter 12, Problem 9E
To determine

Concept Introduction:

Concept of NPv:

Net Present Value:

The Net Present Value technique is a discounted of cash flow method, that considers the time value of money in evaluating capital investments.

The Net Present Value method uses a specified discount rate to bring all subsequent net cash inflows after the initial investment to their present values.

  NPV=Present value of Net cash inflowsTotal Net initial investment

Company net present value and simple rate of interest.

Expert Solution & Answer
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Explanation of Solution

Calculation of Annual Cash Inflows:

  Sales                                                  2,500,000()Variable expenditure                   (1,000,000_)              Contribution                        1,500,000() Fixed expenditure                        (600,000)_                                      EBDIT          900,000() Depreciation                                (600,000_)EBIT                                                   300,000() Tax                                               _           0_PAT                                                    300,000(+) Depreciation                                  600,000_Cash Inflows                                       900,000_               

    YearCIFDF@15%DCFAT
    1180,0000.896161,280
    2180,0000.756136,080
    3180,0000.658118,440
    4180,0000.572102,960
    5180,0000.49789,460
    PVCIF608,220

  Therefore NPv=PVCIFPVCOF                       =608,220300,000                       =308,220

Simple rate of return:

  ARR/SRR=Average Profit After TaxNet Initial Investment                  = 300,0005 300,0002×100                  =60,000150,000 ×100                  =40%                   

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Chapter 12 Solutions

GEN COMBO LOOSELEAF INTRODUCTION TO MANAGERIAL ACCOUNTING; CONNECT AC

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