Assessment 9 Instructions: Making the Right Decision

cf_making_the_right_decision_template.xlsx

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Problems 1–4

BUS-FPX4061 - Managerial Accounting Principles
Assessment 9: Making the Right Decision Worksheet
Problems 1–4
									Input values
Complete problems 1–4 based on the following scenario.
Crouch Corp. needs to decide which of two new projects to invest in.									Company name			Crouch Corp.
·	Project A is an investment in new machinery that will cost $264,000								Tax rate			20%
	and has a four-year life with no salvage value.								Discount rate			6%
·	Project B is an investment in new machinery that will cost $264,000										Project A	Project B
	and has a three-year life with no salvage value.								Investment		$ 264,000	$ 264,000
Using straight-line depreciation, Crouch Corp. predicts that the two projects									Life of machinery (in years)		4	3
will yield the following annual 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					275,000			220,000	Sales			275,000	220,000
Expenses:		Direct materials		38,500			27,500		Expenses:	Direct materials		38,500	27,500
		Direct labor		55,000			33,000			Direct labor		55,000	33,000
		Overhead including depreciation		99,000			99,000			Overhead including depreciation		99,000	99,000
		Selling and administrative expenses		19,800			19,800			Selling and administrative expenses		19,800	19,800
		Total expenses			212,300			179,300		Total expenses		212,300	179,300
Pretax income					62,700			40,700	Pretax income			62,700	40,700
Income taxes (20%)					12,540			8,140	Income taxes (20%)			12,540	8,140
Net income					50,160			32,560	Net income			50,160	32,560
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 each project.
Problem 2	Determine the payback period for each project.
Problem 3	Compute the accounting rate of return for each project.
Problem 4	Determine the net present value using 6% as the discount rate.