Capital budgeting, Managerial Accounting

Assignment Help:
A firm wants to buy a new machine and the following quotation has been received.

Cost of machine US$100 000
Freight and insurance US$5 000

The new machine will last for five years and has a salvage value of Z$80 000. If the new machine is bought the firm will dismantle an old machine at a cost of Z$20 000. The old machine for which 100% SIA has been claimed can be sold today for Z$50 000. The old machine can still last for five more years and will result in a cost of Z$100 000 per annum.

The new machine will result in the firm incurring costs of Z$150 000 per annum. Current production is 100 000 units per annum which will increase to 120 000 units with the new machine. The firm will be able to charge an extra Z$5 per unit over the above current price of Z$15 per unit.

Cost capital is 24%

Tax rate is 40%

Exchange rate: US$1= Z$13

Required:

a) Estimate the initial investment
b) Annual cash flows
c) Terminal value
d) Calculate: the NPV, IRR, PI, PBP

Related Discussions:- Capital budgeting

Accounting rate of return - arr, ARR gives a fast estimate of a project's v...

ARR gives a fast estimate of a project's value over its useful life. ARR is derived by determining profits before taxes and interest.   ARR is an accounting technique used fo

Imposed budgets- budgetary styles, Imposed Budgets In this approach to ...

Imposed Budgets In this approach to budgeting, top management prepares a budget with little or no help from operating personnel, which is then obligatory upon the employees who

Illustration of short-term decisions, Illustration of short-term decisions ...

Illustration of short-term decisions These are, to a significant extent, determined by the excellence of the firm's long-term decisions. Illustration of short-term decisions in

Lowering the average ticket price by 10 percent, Airlines give away million...

Airlines give away millions of tickets each year through their frequent flyer programs, with the typical airline awarding a free ticket for each 25,000 miles flown on the airline.

Managerial decision, Explain the practical application of differential cost...

Explain the practical application of differential costing with examples

Major features of jit, Major features of JIT (1) Elimination of non-val...

Major features of JIT (1) Elimination of non-value added activity:   JIT manufacturing can be described as a philosophy of management, dedicate to the elimination of waste. Wa

International transfer pricing-compliance and documentation, International ...

International transfer pricing Transfer pricing is a perennial issue, within the international tax community (Richard Casna, Accounting and Business, in the year February 1988)

What are the changing role of management accounting, What are the Changing ...

What are the Changing role of management accounting 1. Focus on customer scarification: customer satisfactions are continuously gaining high priority in management thinking i

Mgt acc., companyXYZusesthe job oder costing system.

companyXYZusesthe job oder costing system.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd