SOLUTIONS MANUAL
** All Chapters included
** Review Questions
** Exercises & Problems
** Critical Thinking & Cases
,Table of Contents are given below
1. Introduction to Managerial Accounting
2. Job Order Costing
3. Process Costing
4. Cost-Volume-Profit Analysis
5. The Budgeting Process
6. Flexible Budgets and Standard Cost Systems
7. Cost Allocation and Responsibility Accounting
8. Short-term Business Decisions
9. Capital Investment Decisions
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure that all
chapters are included in this document. (Complete Chapters included Ch.M9 - M1)
Chapter M:9
Capital Investment Decisions
Try Its!
TI-M:9-1.
1. d 2. b 3. c 4. a 5. b 6. b 7. c
TI-M:9-2.
1. Payback for machinery = $600,000 / $100,000 per year = 6 years
2.
Total net cash inflows during operating life of the asset ($100,000 per year × 8 years) $ 800,000
Less: Total depreciation during operating life of the asset ($600,000 – $50,000) 550,000
Total operating income during operating life $ 250,000
Divide by: Asset's operating life in years ÷ 8 years
Average annual operating income from asset $ 31,250
Average amount invested = (Amount invested + Residual value) / 2
= ($600,000 + $50,000) / 2
= $325,000
ARR = $31,250 / $325,000 = 0.0962 = 9.62
3. Lockwood Company should not invest in the machinery. While it passes the payback analysis with
a payback period less than the useful life, the expected ARR of 9.62% is less than the company’s required
rate of return of 12%.
TI-M:9-3
1. This is an example of a lump sum payment.
Present value = Principal × PV factor for i = 10%, n = 3
= $5,000 × 0.751
= $3,755
9-1
, TI-M:9-3, cont.
2. This is an example of an annuity.
Present value = Amount of each cash inflow × Annuity PV factor for i = 10%, n = 3
= $5,000 × 2.487
= $12,435
3. While this example has three payments, they are not equal payments. Therefore, this is not an
annuity, but a series of lump sums. The total present value is $7,753 ($1,870 + $2,619 + $3,264).
Year 1:
Present value = Future value × PV factor for i = 7%, n = 1
= $2,000 × 0.935
= $1,870
Year 2:
Present value = Future value × PV factor for i = 7%, n = 2
= $3,000 × 0.873
= $2,619
Year 3:
Present value = Future value × PV factor for i = 7%, n = 3
= $4,000 × 0.816
= $3,264
9-2
** All Chapters included
** Review Questions
** Exercises & Problems
** Critical Thinking & Cases
,Table of Contents are given below
1. Introduction to Managerial Accounting
2. Job Order Costing
3. Process Costing
4. Cost-Volume-Profit Analysis
5. The Budgeting Process
6. Flexible Budgets and Standard Cost Systems
7. Cost Allocation and Responsibility Accounting
8. Short-term Business Decisions
9. Capital Investment Decisions
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure that all
chapters are included in this document. (Complete Chapters included Ch.M9 - M1)
Chapter M:9
Capital Investment Decisions
Try Its!
TI-M:9-1.
1. d 2. b 3. c 4. a 5. b 6. b 7. c
TI-M:9-2.
1. Payback for machinery = $600,000 / $100,000 per year = 6 years
2.
Total net cash inflows during operating life of the asset ($100,000 per year × 8 years) $ 800,000
Less: Total depreciation during operating life of the asset ($600,000 – $50,000) 550,000
Total operating income during operating life $ 250,000
Divide by: Asset's operating life in years ÷ 8 years
Average annual operating income from asset $ 31,250
Average amount invested = (Amount invested + Residual value) / 2
= ($600,000 + $50,000) / 2
= $325,000
ARR = $31,250 / $325,000 = 0.0962 = 9.62
3. Lockwood Company should not invest in the machinery. While it passes the payback analysis with
a payback period less than the useful life, the expected ARR of 9.62% is less than the company’s required
rate of return of 12%.
TI-M:9-3
1. This is an example of a lump sum payment.
Present value = Principal × PV factor for i = 10%, n = 3
= $5,000 × 0.751
= $3,755
9-1
, TI-M:9-3, cont.
2. This is an example of an annuity.
Present value = Amount of each cash inflow × Annuity PV factor for i = 10%, n = 3
= $5,000 × 2.487
= $12,435
3. While this example has three payments, they are not equal payments. Therefore, this is not an
annuity, but a series of lump sums. The total present value is $7,753 ($1,870 + $2,619 + $3,264).
Year 1:
Present value = Future value × PV factor for i = 7%, n = 1
= $2,000 × 0.935
= $1,870
Year 2:
Present value = Future value × PV factor for i = 7%, n = 2
= $3,000 × 0.873
= $2,619
Year 3:
Present value = Future value × PV factor for i = 7%, n = 3
= $4,000 × 0.816
= $3,264
9-2
