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SUBJECT: ADVANCE MANAGEMENT ACCOUNTING QUESTION 1 Management at Jessrey Grind wants to install an espresso bar in its restaurant. The espresso bar: Costs $140,000 and

SUBJECT: ADVANCE MANAGEMENT ACCOUNTING

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QUESTION 1 Management at Jessrey Grind wants to install an espresso bar in its restaurant. The espresso bar: Costs $140,000 and has a 10-year life. Will generate net annual cash inflows of $35,000. Management requires a payback period of 5 years or less on all investments. REQUIRED: a. What is the payback period for the espresso bar? Show your workings. (12 Marks) b. Will the management of Daily Grind invest in the espresso bar? Explain. (8 Marks) QUESTION 2 You are considering the following two mutually exclusive projects that will not be repeated. The required rate of return is 11.25% for project A and 10.75% for project B. Which project should you accept and why? Year Project A Project B -$48,000 -$126,900 $18,400 $ 69,700 $31,300 $ 80,900 $1 1, 700 0 REQUIRED: a. Calculate the NPV. (20 Marks) b. Which project should you accept and why? (5 Marks) (TOTAL: 25 MARKS]

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