MANAGERIAL ACCOUNTING

1) Buller Manufacturing is considering acquiring another facility for a cost of $610,000. The required payback period is 4.5 years. Assume annual net cash inflows are $150,000 for the first two years and $125,000 for years 3 and 4.

What must the inflow be in the fifth year to meet the 4.5 year payback period? (3 marks)

2) Assume that you want to retire early at age 55. You plan to save using one of the following two strategies: (1) save $4,000 a year in an RRSP beginning when you are 25 and ending when you are 55 (30 years) or (2) wait until you are 40 to start saving and then save $8,000 per year for the next 15 years. Assume that you will earn the historic stock market average of 10% per year.

How much savings will you have accumulated at age 55 under the two options? (3 marks)

3) Your best friend just received a gift of $10,000 from his favourite aunt. He wants to save the money to open his own business after school. He can (1) invest it risk-free at 3%, (2) take on moderate risk at 8%, or (3) take on high risk at 16%.

Help your friend project the investment's worth at the end of four years under each investment strategy and explain the results to him. (3 marks)

4) Martin is considering a capital investment that costs $680,000 and will provide the net cash inflows listed below.

Year	Net Cash Inflow
1	350,000
2	250,000
3	200,000

Required:

1. Using a hurdle rate of 10%, find the net present value of the investment. (3 marks)
2. Estimate the internal rate of return (within a 1% range) of the capital investment? (3 marks)

5) Anderson Equipment Manufacturing produces equipment for the natural gas industry. The company management is considering purchasing new controllers for the fabricating machines. The new controllers are expected to increase efficiency and product quality. The engineering staff estimate that annual net cash savings from increased efficiency will be $35,000 per year for four years. The existing controllers can be sold for $8,000. The new controllers have a purchase price of $75,000 and will require installation costs in the amount of $4,500. The annual software contract for the new controllers is $1,700; the controllers will be depreciated using the straight-line method. The salvage value of the new controllers at the end of four years is estimated to be $10,000. The company has a required rate of return of 15%.

Required:

1. Determine the net present value of the investment in the new controllers. (2 marks)
2. Estimate the internal rate of return (within a 5% range) of the investment in the new controllers. (3 marks)

6) Por favor Company makes and sells one kind of toy. The fixed costs of operating the company are $ 500,000 and the variable costs for the toy are $12 per unit. The toys are sold for $30 per unit.

Calculate the following (show all the steps and your calculations).

1. The break-even point in units. [2 marks]
2. The break-even point in dollars. [2 marks]
3. The margin of safety in units at 85,000 toys being sold. [2 marks]
4. The margin of safety in percentage at 85,000 toys being sold. [2 marks]
5. How many toys should they sell to earn a net income of AED 250,000? [3 marks]
6. Prepare a CVP income statement to prove your point. [3 marks]

7. The company believes that it will be able to reduce its variable expenses by $2 per toy by purchasing a machine for the production of toys but that will increase fixed costs by AED 40,000. What is the new break-even in dollars rounded to the nearest dollar? [3 marks]

8. Refer to original data, if the company is able to sell only 20,000 toys, calculate the new operating income or loss. Comment on your answer. [3 marks]