FUNDAMENTAL ACCT PRIN CONNECT ACCESS
FUNDAMENTAL ACCT PRIN CONNECT ACCESS
24th Edition
ISBN: 9781266494604
Author: Wild
Publisher: MCG
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Chapter 26, Problem 4BPSB
To determine

Concept Introduction:

NPV:

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

  NPV = Present value of cash inflows  Present value of cash out flows

Payback Period:

Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual cash inflow from the project.

Requirement-1

To Calculate:

The Net present value of Alternative 1

To determine

Concept Introduction:

NPV:

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

  NPV = Present value of cash inflows  Present value of cash out flows

Payback Period:

Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual cash inflow from the project.

Requirement-2

To Calculate:

The Net present value of Alternative 2

To determine

Concept Introduction:

NPV:

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

  NPV = Present value of cash inflows  Present value of cash out flows

Payback Period:

Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual cash inflow from the project.

Requirement-3

Which alternative should be chosen for investment

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4. ABG produces and sells a single product at the price of 20 euros. During its first year of operation (20X7), the company had no initial stocks. The production cost of a product unit is as follows: Variable production cost of 8 euros per unit. Fixed production cost 9,600 euros. Also, the company has fixed sales expenses of 5,400 euros. In the first year of operation, the company had budgeted that it would produce and sell 3,200 units of product. In fact, during the period production and sales amounted to 3,200 units of product. Requested: To calculate the operating result of the company for the first year of its operation using absorption and marginal costing.  Calculate the operating result of the company for the first year of its operation using absorption and marginal costing, assuming that sales for the period amounted to 2,700 units and 500 units remained as final inventory. What is the value of the final inventory of stocks with both costing techniques in this case?
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