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Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall
Edition 9ISBN: 0073527068Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall
Edition 9ISBN: 0073527068
Verified
Step 1 of 2
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a. |
Year |
Volume | Contribution Margin @ $ 6.00 per dozen | Present Value Factor (Table 6?2, 14%) | Present Value | |||||
| 2010 | 5,400 dozen | $32,400 | 0.8772 | $ 28,421 | |||||
| 2011 | 8,400 dozen | 50,400 | 0.7695 | 38,783 | |||||
| 2012 | 12,750 dozen | 76,500 | 0.6750 | 51,638 | |||||
| 2013 | 16,950 dozen | 101,700 | 0.5921 | 60,217 | |||||
| 2014 | 18,000 dozen | 108,000 | 0.5194 | 56,095 | |||||
| Total present value of inflows | $235,154 | ||||||||
| Investment (machine cost, plus delivery and installation costs) | (218,000) | ||||||||
| Net present value | $ 17,154 | ||||||||
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b. | Profitability index = ($235,154 present value of inflows / $218,000 investment) =1.079 | |||||||||
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c. | Because the net present value is positive and the profitability index is rather high, the IRR is significantly greater than the 14% discount rate used to calculate the NPV. | |||||||||
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d. |
| Year | Cash Flow | Cumulative Cash Flow |
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| 1. | 2010 | $ 32,400 | $ 32,400 |
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| 2. | 2011 | 50,400 | 82,800 |
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| 3. | 2012 | 76,500 | 159,300 |
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| 4. | 2013 | 101,700 | 261,000 |
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| 5. | 2014 | 108,000 | 369,000 |
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Step 2 of 2
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