Analyze and compute the payback period, a
Analyze and compute the payback period, accounting rate of return, and net present value, based on information provided in the template.
Introduction
Note: Accounting requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order.
Flexible budgets, variance analysis, and standard costs are procedures used to assist managers with the control and monitoring of business activities.
Instructions
Note: Accounting requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order.
Use the Making the Right Decision Template [XLSX] to complete this assessment. Based on the data provided in the template, analyze and compute the payback period, accounting rate of return, and net present value.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
- Competency 3: Apply time value of money concepts.
- Compute an accounting rate of return.
- Calculate the net present value.
- Competency 4: Analyze financial statements.
- Compute annual expected net cash flows.
- Compute a payback period.
- Competency 5: Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.
- Communicate quantitative information accurately and effectively.
Problems 1–4
| BUS-FPX4061 – Managerial Accounting Principles | ||||||||||||||||||||||||
| Assessment 9: Making the Right Decision Worksheet | ||||||||||||||||||||||||
| Problems 1–4 | ||||||||||||||||||||||||
| Input values | ||||||||||||||||||||||||
| Complete problems 1–4 based on the following scenario. | ||||||||||||||||||||||||
| Crouch Corp. needs to decide which of two new projects to invest in. | Company name | Crouch Corp. | ||||||||||||||||||||||
| · | Project A is an investment in new machinery that will cost $264,000 | Tax rate | 20% | |||||||||||||||||||||
| and has a four-year life with no salvage value. | Discount rate | 6% | ||||||||||||||||||||||
| · | Project B is an investment in new machinery that will cost $264,000 | Project A | Project B | |||||||||||||||||||||
| and has a three-year life with no salvage value. | Investment | $ 264,000 | $ 264,000 | |||||||||||||||||||||
| Using straight-line depreciation, Crouch Corp. predicts that the two projects | Life of machinery (in years) | 4 | 3 | |||||||||||||||||||||
| will yield the following annual results, with cash flows occurring evenly | four | three | ||||||||||||||||||||||
| throughout the year. | Salvage value | $0 | $0 | |||||||||||||||||||||
| Predicted Annual Results | Predicted Annual Results | |||||||||||||||||||||||
| Project A ($) | Project B ($) | Project A ($) | Project B ($) | |||||||||||||||||||||
| Sales | 275,000 | 220,000 | Sales | 275,000 | 220,000 | |||||||||||||||||||
| Expenses: | Direct materials | 38,500 | 27,500 | Expenses: | Direct materials | 38,500 | 27,500 | |||||||||||||||||
| Direct labor | 55,000 | 33,000 | Direct labor | 55,000 | 33,000 | |||||||||||||||||||
| Overhead including depreciation | 99,000 | 99,000 | Overhead including depreciation | 99,000 | 99,000 | |||||||||||||||||||
| Selling and administrative expenses | 19,800 | 19,800 | Selling and administrative expenses | 19,800 | 19,800 | |||||||||||||||||||
| Total expenses | 212,300 | 179,300 | Total expenses | 212,300 | 179,300 | |||||||||||||||||||
| Pretax income | 62,700 | 40,700 | Pretax income | 62,700 | 40,700 | |||||||||||||||||||
| Income taxes (20%) | 12,540 | 8,140 | Income taxes (20%) | 12,540 | 8,140 | |||||||||||||||||||
| Net income | 50,160 | 32,560 | Net income | 50,160 | 32,560 | |||||||||||||||||||
| Complete the problems below. Add answers in this template and show your work. | Present value of $1 at 6% annuity for 4 years | 3.4651 | ||||||||||||||||||||||
| Present value of $1 at 6% annuity for 3 years | 2.6730 | |||||||||||||||||||||||
| Problem 1 | Compute the annual expected net cash flows for each project. | |||||||||||||||||||||||
| Problem 2 | Determine the payback period for each project. | |||||||||||||||||||||||
| Problem 3 | Compute the accounting rate of return for each project. | |||||||||||||||||||||||
| Problem 4 | Determine the net present value using 6% as the discount rate. | |||||||||||||||||||||||
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