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(pdf) Management Accounting - Assignment

   

Added on  2021-04-24

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Running head: MANAGEMENT ACCOUNTING Management AccountingName of the Student:Name of the University:Author Note

1MANAGEMENT ACCOUNTINGTable of ContentsAnswer to Question 1......................................................................................................................2Answer to Requirement 1............................................................................................................2Answer to Requirement 2............................................................................................................3Answer to Question 2......................................................................................................................4Answer to Requirement 1............................................................................................................4Answer to Requirement 2............................................................................................................5Option 1.......................................................................................................................................5Option 2.......................................................................................................................................6Option 3.......................................................................................................................................7Answer to Question 3......................................................................................................................8Answer to Requirement 1(a)........................................................................................................8Answer to Requirement 1 (b)......................................................................................................9Answer to Requirement 2............................................................................................................9Answer to Question 3................................................................................................................10References and Bibliography........................................................................................................12

2MANAGEMENT ACCOUNTINGAnswer to Question 1Answer to Requirement 1The net present value of a project refers to the difference between the present value of theinflow of cash and the present value of the outflow of cash over a period of time. NPVessentially reflects the profitability of an investment project. Furthermore, the internal rate ofreturn refers to the discount rate that essentially values the net present value (NPV) of all cashflows in regards to a particular project that is equal to zero. It should be noted here that the NPVand IRR are derived from the same formula. The issue presented in the question is that the twoprojects have been considered, Project A and B. An initial investment of AED 11,000 isrequired. The cash inflows occur at the end of each year. Therefore, the following computationshave been carried out on the basis of the given considerations (Magni & Martin, 2017). Req.1:YearProject AProject B0AED -11,000AED -11,0001AED 1,000AED 5,0002AED 2,000AED 4,0003AED 3,000AED 3,0004AED 4,000AED 2,0005AED 5,000AED 1,000Required Rateof Return8%8%NPVAED 338.09AED1,473.26IRR9.00%14.93%

3MANAGEMENT ACCOUNTINGThe above table that has been presented shows the net present value and the internal rateof return computations for both of the projects. The table deduces that the internal rate of returnand the Net present value of the projects are greater in case of Project B in comparison to ProjectA. Therefore, the project, which the Company should accept, is Project B.Answer to Requirement 2Project AProject BYearAnnualCash FlowCumulativeCash FlowAnnualCash FlowCumulative CashFlow0AED -11,000AED -11,000AED -11,000AED -11,0001AED 1,000AED -10,000AED 5,000AED -6,0002AED 2,000AED -8,000AED 4,000AED -2,0003AED 3,000AED -5,000AED 3,000AED 1,0004AED 4,000AED -1,000AED 2,000AED 3,0005AED 5,000AED 4,000AED 1,000AED 4,000PaybackPeriod4.202.67The payback period for each project refers to the time period that is needed by aninvestment project for the purpose of deriving the projected returns from the respectiveinvestment ventures. The payback period for Project A is 4.20 years and that for Project B is2.67years.In case the Company has the policy of accepting projects with 3 years or less, thecompany should accept the Project B.

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