Finance Accounting

QUESTIONS

1 . Summaries the net cash flows for the proposed project

2 . For the project , the payback period and the net present value

There are 2 files attached because there are two ways of paying the loan off . The first one- is to liquidate the rest of the loan in equal parts in 7 years , the second - is pay off the whole sum at one moment . Those files have only two first questions in them

Question 3

What qualitative factors should be considered in evaluating this project

No 100 exact

correct answer . It could be : vision , objectives , strategy and values . What is our objectives /mission ? Probably the main mission of the company is to become the up-to-date enterprise that sets the standard for professionalism and reliability to the consumer . Doing so will result in obtaining A COMPETITIVE ADVANTAGE and consistent profitability

Taking into consideration our aim we buy new automatic equipment instead of the old manual one . It could also be the strategic partnership

Question 4

What decision would you recommend ? The result is the same ? NPV is negative , so it is not recommended to start the project . That is the answer for the 4th question (What decision would you recommend

On the other hand there is a good idea not to buy new machine in next 2-3 years . If so , the project can be profitable (NPV 0

Reasons for such a decision

1 . The given information shows us the trend for equipment . It is getting cheaper and cheaper every year (the price has fallen from 7 .5 to 6 .8 in 4 years . So in few years we can buy it for less

2 . At this point our new equipment has been working only 3 out 15 years . No need to change it so fast . We took a loan for this equipment and have to pay it off anyway . Plus , we sell it two times cheaper of it residual value . We are ready to sell it for 2 .4 mln , when its real value is 4 .56 mln . Why 4 .56

The method of counting is as follows : 5 .7-5 .7 3 /15 4 .56 - it is residual value

By the way , the reason that we have negative NPV is that we set the price that low

Why - because NPV is NOT greater then 0 . That 's the financial criteria

Question 5

Provide an explanation of the role of the management accountant in the decision making process

Accounting policy in general is a very important issue for the whole decision making process . That is because it determines the method of amortization used . You can get either the negative or positive NPV using different methods for one project . Who is to blame ? The only answer is the chief accountant

EXHIBIT 1 Mavis Machine Shop Selected Financial Information Condensed Income Statement Net Sales 53 ,642 ,130

Cost of Goods Sold 34 ,949 ,410 Selling

General Administrative 6 ,437 ,060

Profit before Taxes 12 ,555 ,660

Income Taxes 6 ,028 ,510

Net...