Please help create a Memo Analysis below:
evaluate a cost analysis and make a decision based on cost comparatives of two or more alternatives, the manager consider relevant and incremental costs only. Thank you.
Part B: Written Component
Assume you are the plant accountant for your company. During the monthly meeting, you decided to share your knowledge of the capital budgeting methods discussed in Part A. How do these methods compare to each other?
1. Determine the payback period for an investment. 2. Evaluate the acceptability of an investment project using the net present value method. 3. Evaluate the acceptability of an investment project using the internal rate of return method. 4. Compute the simple rate of return for an investment. Comparison of Capital Budgeting Methods - Excel ? FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In Calibri - 11 Paste BIU % Alignment Number Conditional Format as Cell Formatting Table Styles Styles Cells Editing Clipboard Font D20 A B D E $ $ 1 Laurman, Inc. is considering the following project: 2 Required investment in equipment 3 Project life 4 Salvage value 2,205,000 7 225,000 5 ws: 7 $ 00 2,750,000 1,600,000 1,150,000 9 $ 10 6 The project would provide net operating income each year as Sales Variable expenses Contribution margin Fixed expenses: Salaries, rent and other fixed out-of pocket costs Depreciation Total fixed expenses Net operating income 11 $ 520,000 350,000 12 13 870,000 280.000 14 $ 15 16 Company discount rate 18% 17 18 1. Compute the annual net cash inflow from the project. $ $ 630,000 19 FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW Sign In Calibri - 11 AP % Paste BI Cells Editing Alignment Number Conditional Format as Cell Formatting Table Styles Styles Clipboard Font D20 fi A B C D E 19 20 2. Complete the table to compute the net present value of the investment. 7 $ 22 Year(s) 23 Now 1-7 24 Initial investment $ (2,205,000.00) 25 Annual cost savings $ 630,000.00 26 Salvage value of the new machine $ 27 Total cash flows $ (2,205,000.00) $ 630,000.00 $ 28 Discount factor 1.000 3.812 29 Present value of the cash flows $ (2,205,000.00) $ 2,401,262.38 $ 30 Net present value $ 266,895.52 31 32 Use Excel's PV function to compute the present value of the future cash flows $ 33 Deduct the cost of the investment $ 34 Net present value $ 35 36 3. Use Excel's RATE function to compute the project's internal rate of return 225,000.00 225,000.00 0.314 70,633.13 2,471,895.52 (2,205,000.00) 266,895.52 $ 22.04% 37 38 4. Compute the project's payback period. 3.5 years 39 40 5. Compute the project's simple rate of return. 12.70% 41
