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Assessment 9: Making the Right Decision Worksheet Problems 14 Input values Complete problems 14 based on the following scenario. Megacorp needs to decide which of
| Assessment 9: Making the Right Decision Worksheet | |||||||||||||||||||||||
| Problems 14 | |||||||||||||||||||||||
| Input values | |||||||||||||||||||||||
| Complete problems 14 based on the following scenario. | |||||||||||||||||||||||
| Megacorp needs to decide which of two new projects to invest in. | Company name | Megacorp | |||||||||||||||||||||
| Project A is an investment in new machinery that will cost $750,000 | Tax rate | 30% | |||||||||||||||||||||
| and has a four-year life with no salvage value. | Discount rate | 6% | |||||||||||||||||||||
| Project B is an investment in new machinery that will cost $750,000 | Project A | Project B | |||||||||||||||||||||
| and has a three-year life with no salvage value. | Investment | $ 750,000 | $ 750,000 | ||||||||||||||||||||
| Using straight-line depreciation, Megacorp 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 | 700,000 | 560,000 | Sales | 700,000 | 560,000 | ||||||||||||||||||
| Expenses: | Direct materials | 98,000 | 70,000 | Expenses: | Direct materials | 98,000 | 70,000 | ||||||||||||||||
| Direct labor | 140,000 | 84,000 | Direct labor | 140,000 | 84,000 | ||||||||||||||||||
| Overhead including depreciation | 252,000 | 252,000 | Overhead including depreciation | 252,000 | 252,000 | ||||||||||||||||||
| Selling and administrative expenses | 50,000 | 50,000 | Selling and administrative expenses | 50,000 | 50,000 | ||||||||||||||||||
| Total expenses | 540,000 | 456,000 | Total expenses | 540,000 | 456,000 | ||||||||||||||||||
| Pretax income | 160,000 | 104,000 | Pretax income | 160,000 | 104,000 | ||||||||||||||||||
| Income taxes (30%) | 48,000 | 31,200 | Income taxes (30%) | 48,000 | 31,200 | ||||||||||||||||||
| Net income | 112,000 | 72,800 | Net income | 112,000 | 72,800 | ||||||||||||||||||
| 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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The Audit Process Principles Practice And Cases
Authors: Stuart Manson, Iain Gray, Iain G. Sheffield, I.H. Gray, I. Etal Gray
2nd Edition
1861520107, 9781861520104
