Sales volume reaches the maximum capacity, Financial Accounting

Sales volume reaches the maximum capacity of the new machine in Year 4.

577_Sales volume reaches the maximum capacity.png

1692_Sales volume reaches the maximum capacity1.png

The positive NPV point to that the investment in Machine Two is financially acceptable although the NPV is so small that there is likely to be a significant possibility of a negative NPV.


933_Sales volume reaches the maximum capacity2.png

Writing down allowances as well as tax benefits

1920_Sales volume reaches the maximum capacity3.png


Total taxable cash flow = (48100 + 68214 + 90040 + 113234) = $319588

Total depreciation = $215000

Total accounting profit = 319588 - 215000 = $104588

Average annual accounting profit = 104588/4 = $26147

Average investment = 215000/2 = $107500

Return on capital employed = 100 × 26147/107500 = 24·3%

ROCE of 24·3% is somewhat less than the target ROCE of 25% indicating that buying the machine isn't acceptable with respect to this criterion. though evaluation using the net present value approach is preferred for investment advice.

Posted Date: 7/11/2013 6:54:56 AM | Location : United States

Related Discussions:- Sales volume reaches the maximum capacity, Assignment Help, Ask Question on Sales volume reaches the maximum capacity, Get Answer, Expert's Help, Sales volume reaches the maximum capacity Discussions

Write discussion on Sales volume reaches the maximum capacity
Your posts are moderated
Related Questions
Consider a multinational listed company that has recently carried out an acquisition. You may also select a company that carried out an acquisition long ago as long as there is inf

Do you anyone on staff with the above experience? Notes cannot be copied from any real company''s financial report.

The capital structure of Wild West Inc. is as follows: -     Debts: $5,000,000 (face value) bonds with coupon rate at 8.00% and current price at par -      Preferred shares:

Effect of discharge An order of discharge releases the bankrupt from all disabilities imposed by the bankruptcy (except those which apply for a fixed period after discharge - s

Balance Sheet Classifications and Relationships: Shelley and Co. has the following balance sheet elements as of December 31, 2012. Land. . . . . . . . . . . . . . . . . . . . . . .

with the following data for a 60 percent activity, prepare a flexible budget for production at 80 percent and 100 percent activity production at 60% activity - 6000 units

Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' ec

Normal 0 false false false EN-US X-NONE X-NONE MicrosoftInternetExplorer4

Callable Preferred Stock On March 4, 2013, Hein Corporation issues 1,000 shares of $100 par preferred stock for $125 per share. The stock is not callable by the corporation until 3

Question Capital Expenditure Decisions and Investment Criteria Bodmin plc Bodmin plc is a highly profitable electronics company that manufactures a range of innovative produ