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Management Accounting Assignment | Airline Company

   

Added on  2020-05-16

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MANAGEMENTACCOUNTING
Management Accounting Assignment | Airline Company_1
ContentsSolution for Situation 1:.............................................................................................................3Solution for Situation 2:.............................................................................................................5Part a.......................................................................................................................................5Part b.......................................................................................................................................5Solution for Situation 3:.............................................................................................................7Part a.......................................................................................................................................7Part b.......................................................................................................................................7
Management Accounting Assignment | Airline Company_2
Solution for Situation 1:In the given situation, the airline company needs to evaluate the cash flows from both thealternatives. The alternative with least cash outflow should be opted for. We have calculatedthe cash flows from both the alternatives. Also, we have calculated the cash flows if any taxshield were available to the company.Situation 1: no tax shield available to the company:Cash flows from old loader (ignoring tax shield)Annual Variable Operating Expenses 80,000 Less: Salvage for the loader 5,000 Net Cash Outflows 75,000 Cash flows from new loader (ignoring tax shield)Cost of the New Loader 20,000 Annual Variable Operating Expenses 50,000 Net Cash Outflows 70,000 From the above calculations we can see that cash outflows from the new loader are less thanthat of the old loader. Therefore, keeping the above costs into consideration, we can concludethat the company should replace the old loader with the new one; this will help the companysave $5000.Situation 2: Tax Shield available to the company:We have assumed that the applicable tax rate for the company is 30%.Cash flows from old loader (net of tax shield)Annual Variable Operating Expenses 80,000Less: Salvage for the loader 5,000Cash Outflows 75,000Less: Tax shield on above cash flows (75000*0.30) 22,500Less: Depreciation tax shield (25000*0.30) 7,500Net Cash Outflows 45,000Cash flows from new loader (net of tax shield)Cost of the New Loader 20,000
Management Accounting Assignment | Airline Company_3

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