Solutions Manual, Chapter 8 51
Problem 8-30 (continued)
4. a. Several intangible benefits are usually associated with investments in
52 Managerial Accounting for Managers, 4th Edition
Case 8-31 (45 minutes)
1. Rachel Arnett’s revision of her first proposal can be considered a
violation of the IMA’s Statement of Ethical Professional Practice. She
relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports, analyses, or
Competence standard—“Provide decision support information and
recommendations that are accurate, clear, concise, and timely.”
2. Earle was clearly in violation of the Standards of Ethical Conduct for
Management Accountants because he tried to persuade a subordinate to
communicate with business associates to avoid apparent conflicts of
interest.), and Credibility (Communicate information fairly and
analyses, or recommendations.).
Solutions Manual, Chapter 8 53
Case 8-31 (continued)
3. The internal controls Fore Corporation could implement to prevent
unethical behavior include:
and/or the Board of Directors.
proposals are submitted for approval.
requiring the internal audit staff to review all capital expenditure
(Unofficial CMA Solution, adapted)
54 Managerial Accounting for Managers, 4th Edition
Case 8-32 (45 minutes)
1. The net cash inflow from sales of the device for each year would be:
Year
1
2
4-6
Sales in units ……………………
9,000
15,000
22,000
Sales in dollars
(@ $35 each) ………………..
$315,000
$525,000
$770,000
Variable expenses
(@ $15 each) ………………..
135,000
225,000
330,000
Contribution margin …………..
180,000
300,000
440,000
Fixed expenses:
Salaries and other* …………
85,000
85,000
85,000
85,000
Advertising ……………………
180,000
180,000
120,000
Total fixed expenses ………….
265,000
265,000
205,000
Net cash inflow (outflow) ……
$(85,000)
$ 35,000
$235,000
*
Depreciation is not a cash expense and therefore must be eliminated
from this computation. The analysis is:
($315,000 – $15,000 = $300,000) ÷ 6 years = $50,000 depreciation;
$135,000 total expense – $50,000 depreciation = $85,000.
Solutions Manual, Chapter 8 55
Case 8-32 (continued)
2. The net present value of the proposed investment would be:
Now
1
2
3
4
5
6
Cost of equipment …
$(315,000)
Working capital ……..
(60,000)
Yearly net cash
flows …………………..
$(85,000)
$35,000
$125,000
$235,000
$235,000
$235,000
Release of working
capital …………………
60,000
Salvage value of
equipment ……………
_______
______
______
______
______
______
15,000
Total cash flows (a) .
$(375,000)
$(85,000)
$35,000
$125,000
$235,000
$235,000
$310,000
Discount factor
(14%) (b) ……………
1.000
0.877
0.769
0.675
0.592
0.519
0.456
Present value
(a)×(b) ……………….
$(375,000)
$(74,545)
$26,915
$84,375
$139,120
$121,965
$141,360
Net present value ….
$64,190
56 Managerial Accounting for Managers, 4th Edition
Appendix 8A
The Concept of Present Value
Exercise 8A-1 (10 minutes)
Amount of Cash Flows
18%
Present Value of Cash
Flows
Year
Investment
A
Investment
B
Factor
Investment
A
Investment
B
1
$3,000
$12,000
0.847
$ 2,541
$10,164
2
$6,000
$9,000
0.718
4,308
6,462
3
$9,000
$6,000
0.609
5,481
3,654
4
$12,000
$3,000
0.516
6,192
1,548
$18,522
$21,828
Solutions Manual, Appendix 8A 57
Exercise 8A-2 (10 minutes)
The present value of the first option is $150,000, since the entire amount
would be received immediately.
The present value of the second option is:
Annual annuity: $14,000 × 7.469 (Exhibit 8B-2) ……….
$104,566
Lump-sum payment: $60,000 × 0.104 (Exhibit 8B-1) ..
6,240
Total present value …………………………………………….
$110,806
value.
On the surface, the second option appears to be a better choice because it
value to be far less.
58 Managerial Accounting for Managers, 4th Edition
Exercise 8A-3 (10 minutes)
1. From Exhibit 8B-1, the factor for 10% for 3 periods is 0.751. Therefore,
the present value of the required investment is:
Solutions Manual, Appendix 8A 59
Exercise 8A-4 (10 minutes)
the company must invest:
the company must invest: