Assessment 9:Making the Right Decision WorksheetProblems 1–4Input valuesComplete problems 1–4 based on...Assessment 9:Making the...

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Accounting

Assessment 9:Making the Right Decision Worksheet
Problems 1–4
Input values
Complete problems 1–4 based onthe following scenario.
Megacorp needs to decide whichof two new projects to invest in. Company name Megacorp
·      Project A is an investment in new machinery thatwill cost $750,000 Tax rate 30%
and has a four-year life with no salvagevalue. Discount rate 6%
·      Project B is an investment in new machinery thatwill cost $750,000 Project A Project B
and has a three-year life with no salvagevalue. Investment $ 750,000 $    750,000
Using straight-linedepreciation, Megacorp predicts that the two projects Life of machinery (in years)                4                  3
will yield the followingannual 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 eachproject.
Problem 2 Determine the payback period for each project.
Problem 3 Compute the accounting rate of return for eachproject.
Problem 4 Determine the net present value using 6% as thediscount rate

Answer & Explanation Solved by verified expert

4.1 Ratings (483 Votes)

1 Calculation of annual expected net cash flows for each project Deperciation of Poject A 7500004 187500 Deperciation of Poject B 7500003 250000 Project A Project B i Sales 700000 5600000 ii Less Expenses 540000 456000 iii Pre dep See Answer

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In: AccountingAssessment 9:Making the Right Decision WorksheetProblems 1–4Input valuesComplete problems 1–4 based on...Assessment 9:Making the Right Decision WorksheetProblems 1–4Input valuesComplete problems 1–4 based onthe following scenario.Megacorp needs to decide whichof two new projects to invest in.Company nameMegacorp· Project A is an investment in new machinery thatwill cost $750,000Tax rate30%and has a four-year life with no salvagevalue.Discount rate6%· Project B is an investment in new machinery thatwill cost $750,000Project AProject Band has a three-year life with no salvagevalue.Investment$ 750,000$ 750,000Using straight-linedepreciation, Megacorp predicts that the two projectsLife of machinery (in years) 4 3will yield the followingannual results, with cash flows occurring evenlyfourthreethroughout the year.Salvage value$0$0Predicted Annual ResultsPredicted Annual ResultsProject A ($)Project B ($)Project A ($)Project B ($)Sales 700,000 560,000Sales 700,000 560,000Expenses:Direct materials 98,000 70,000Expenses:Direct materials 98,000 70,000Direct labor140,000 84,000Direct labor 140,000 84,000Overhead including depreciation252,000 252,000Overhead including depreciation 252,000 252,000Selling and administrative expenses 50,000 50,000Selling and administrative expenses 50,000 50,000Total expenses 540,000 456,000Total expenses 540,000 456,000Pretax income 160,000 104,000Pretax income 160,000 104,000Income taxes (30%) 48,000 31,200Income taxes (30%) 48,000 31,200Net income 112,000 72,800Net income 112,000 72,800Complete the problems below.Add answers in this template and show your work.Present value of $1 at 6% annuity for 4 years 3.4651Present value of $1 at 6% annuity for 3 years 2.6730Problem 1Compute the annual expected net cash flows for eachproject.Problem 2Determine the payback period for each project.Problem 3Compute the accounting rate of return for eachproject.Problem 4Determine the net present value using 6% as thediscount rate

Assessment 9:Making the Right Decision Worksheet

Problems 1–4
									Input values
Complete problems 1–4 based onthe following scenario.
Megacorp needs to decide whichof two new projects to invest in.									Company name			Megacorp
·	Project A is an investment in new machinery thatwill cost $750,000								Tax rate			30%
	and has a four-year life with no salvagevalue.								Discount rate			6%
·	Project B is an investment in new machinery thatwill cost $750,000										Project A	Project B
	and has a three-year life with no salvagevalue.								Investment		$ 750,000	$ 750,000
Using straight-linedepreciation, Megacorp predicts that the two projects									Life of machinery (in years)		4	3
will yield the followingannual 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 eachproject.
Problem 2	Determine the payback period for each project.
Problem 3	Compute the accounting rate of return for eachproject.
Problem 4	Determine the net present value using 6% as thediscount rate