Management Accounting COURSE WORK : Individual

1. A. Facts Enterprises is trying to select the best investment from among four alternative independent projects presented by their respective firms. Each alternative involves an initial outlay of $80,000 and a 10% cost of capital. Management requires that all project investments should be recovered in 4 years. Their cash flow was as follows:

Year	Sun Ltd	Moon Ltd	Best Ltd	Pep Ltd
1	30,000.00	20,000.00	20,500.00	-
2	25,000.00	30,000.00	20,500.00	30,000.00
3	20,000.00	0	20,500.00	-
4	15,000.00	20,000.00	20,500.00	28,000.00
5	10,000.00	10,000.00	20,500.00	25,000.00
6	5,000.00	30,000.00	-	40,000.00

i) Calculate each projects Payback Period. Based on the payback periods, which project(s) should they accept if the project(s) are independent. Which project(s) should they accept if the projects are mutually exclusive? 12 Marks

ii) Calculate each projects Net Present Value (NPV). Based on the NPVs, which project(s) should they accept if the project(s) are independent?

Which project(s) should they accept if the projects are mutually exclusive? 19 Marks

iii) Calculate the discounted payback period for the projects with positive NPVs.

10 Marks

iv) What does it mean for projects to be mutually exclusive? How should managers rank mutually exclusive projects? 6 Marks

B. What are the strength and weaknesses of each of the following capital budgeting technique below? 16 Marks

i. Payback

ii. ARR

iii. Profitability Index

iv. IRR

MARK SCHEME Mark

(s) Cover Sheet/ Title Page 1

Introduction 3

Table of Contents 2

Content 62

Reference (APA; include in text citation) 6

Grammar 4

Organization 2

TOTAL 80