Managerial Accounting
16th Edition
ISBN: 9781259995484
Author: Ray Garrison
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 13, Problem 30P
To determine
The
Expert Solution
Answer to Problem 30P
Solution: The Net present value of project of purchase of Robots is $46,120.
Explanation of Solution
The Statement showing the computation of net present value of project is computed as under:
| Computation of Net present value of project of Purchase of Robots | ||||
| Net Annual savings: | ||||
| Savings in Annual carrying cost of Inventory | 210000 | |||
| Savings in Labour cost (25000 DLH @16) | 400000 | |||
| Total savings | 610000 | |||
| Less: Annual Increase in Power cost | 30000 | |||
| Net Annual savings | 580000 | |||
| Annuity Present value factor (i=20%, n=5) | 2.991 | |||
| Present value of Annual savings in cost | 1734780 | |||
| Add: Present value of Release of Inventory | 333200 | |||
| ($ 400,000* Present value of 1st year i.e. 0.833) | ||||
| Add: Present value of Salvage value of investment | 28140 | |||
| ($ 70,000 * Present value factor for 5th year i.e. 0.402) | ||||
| Total Present value of |
2096120 | |||
| Less: Present value of Outflows | ||||
| Initial investment of cost of Robot | 1600000 | |||
| Add: Installation and Software cost | 450000 | |||
| Present value of outflows | 2,050,000 | |||
| Net present value | 46,120 |
Requirement3:
To determine
The net present value of project with changes to actual figures of labour hours saved and installation cost actually incurred.
Expert Solution
Answer to Problem 30P
Solution: The Net present value of Project after making revision as per actual figures of labour hours saved and actual installation cost incurred is $(148,520)
Explanation of Solution
The statement showing revised net present value of the project is as under:
| Computation of Net present value of project of Purchase of Robots | ||||
| Net Annual savings: | ||||
| Savings in Annual carrying cost of Inventory | 210000 | |||
| Savings in Labour cost (22500 DLH @16) | 360000 | |||
| Total savings | 570000 | |||
| Less: Annual Increase in Power cost | 30000 | |||
| Net Annual savings | 540000 | |||
| Annuity Present value factor (i=20%, n=5) | 2.991 | |||
| Present value of Annual savings in cost | 1615140 | |||
| Add: Present value of Release of Inventory | 333200 | |||
| ($ 400,000* Present value of 1st year i.e. 0.833) | ||||
| Add: Present value of Salvage value of investment | 28140 | |||
| ($ 70,000 * Present value factor for 5th year i.e. 0.402) | ||||
| Total Present value of Cash inflows | 1976480 | |||
| Less: Present value of Outflows | ||||
| Initial investment of cost of Robot | 1600000 | |||
| Add: Installation and Software cost | 525000 | |||
| Present value of outflows | 2,125,000 | |||
| Net present value | -148,520 |
Requirement4:
To determine
The additional benefits to be derived from undertaken of the project and Amount of benefit which must accrue each year.
Expert Solution
Answer to Problem 30P
Solution: The Additional benefit which must accrue on undertaking the projects is savings in further carrying cost of inventory which had happen and will be released at the end of year. This cost will go on increasing with the increase in production level. Also, with the increase in production, there will be lot more savings in labour hours, resulted in savings in labor cost further.
The Additional Annual benefit which must accrue to the project each year must be $ 49656 to make project yield 20%.
Explanation of Solution
The Annual additional benefit which must accrue to the company shall be $ 49,656 per annum and has been computed as follows:
| Computation of Annual additional benefits to accrue in project | ||||
| Net present value | -148520 | |||
| Therefore, Present value of annual benefits must be | 148520 | |||
| in 5 years of life | ||||
| Divide: Annuity present factor (i=20%, n=5 years) | 2.991 | |||
| Equivalent Annual benefits which accrue each year | 49656 |
Conclusion
To conclude, it must be said that alternative which is having lower net present worth in terms of cost and higher net present worth in terms of inflows, shall be accepted among the alternatives.
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Chapter 13 Solutions
Managerial Accounting
Ch. 13.A - Prob. 1ECh. 13.A - Prob. 2ECh. 13.A - Prob. 3ECh. 13.A - Prob. 4ECh. 13.A - Exercises 13A-5 Basic Present Value Concepts...Ch. 13.A - Prob. 6ECh. 13.C - Prob. 1ECh. 13.C - Prob. 2ECh. 13.C - PROBLEM 13C-3 Income Taxes and Net Present Value...Ch. 13.C - Prob. 4P
Ch. 13.C - PROBLEM 13C-5 Income Taxes and Net Present Value...Ch. 13 - Prob. 1QCh. 13 - Prob. 2QCh. 13 - Prob. 3QCh. 13 - Prob. 4QCh. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Prob. 7QCh. 13 - Prob. 8QCh. 13 - Prob. 9QCh. 13 - Prob. 10QCh. 13 - Prob. 11QCh. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - What is the major criticism of the payback and...Ch. 13 -
The Excel worksheet form that appears below is to...Ch. 13 - Prob. 1F15Ch. 13 - Prob. 2F15Ch. 13 - Prob. 3F15Ch. 13 - Prob. 4F15Ch. 13 - Prob. 5F15Ch. 13 - Prob. 6F15Ch. 13 - Prob. 7F15Ch. 13 - Prob. 8F15Ch. 13 - Prob. 9F15Ch. 13 - Prob. 10F15Ch. 13 - (
595.000
)...Ch. 13 - Prob. 12F15Ch. 13 - Prob. 13F15Ch. 13 - Prob. 14F15Ch. 13 - Prob. 15F15Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 -
EXERCISE 13-15 Internal Rateof Return and Net...Ch. 13 - Prob. 16PCh. 13 - PROBLEM 13-17 Net Present Value Analysis; Internal...Ch. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 26PCh. 13 -
PROBLEM 13-27 Net Present Value Analysis...Ch. 13 - Prob. 28PCh. 13 - Prob. 29PCh. 13 - Prob. 30PCh. 13 - Prob. 31CCh. 13 - Prob. 32C
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