Managerial Accounting Questions

Question 1  (100 words)

Capital budget decisions weigh the amount of money that needs to be invested now with the amount of money that can be generated over time because of the money that is invested now. Weighing investments against returns involves a number of considerations, but one of those considerations that is often overlooked is the “depreciation tax shield”. How does the depreciation tax shield work, and how does it affect capital budgeting decisions? What kinds of businesses will most benefit from the depreciation tax shield?

Question 2 (75 words)

Bill Martin made an investment several years ago, and he now has an option as to how it will take the return on that investment. Option 1 is to receive an immediate cash payment of $100,000. Option 2 is to receive a payment of $10,000 per year for the next 10 years and then to receive a final payment of $100,000 in the eleventh year. Option 3 is to receive a payment of $20,000 per year for the next 10 years. Bill desires a rate of return on this investment of at least 8%. Which option will return the most to Bill?

Question 3 (75 words)

An investment that requires a one-time payment of $12,000 will return $5,000 per year for the next four years. If the required rate of return is 11%, calculate the net present value of the investment (ignore the effect of taxes). Should this investment be made?

Question 4 (75 words. Excel Spreadsheet can be used or Word Document)

Scuba Supply Company is considering making an investment of $1,000,000 and estimates that the result of the investment will yield the following returns over the next five years:

Year 1

($500,000) a loss

Year 2

$200,000

Year 3

$610,000

Year 4

$740,000

Year 5

$800,000

Estimate the internal rate of return on this investment.

Question 5 (75 words)

Homemade Bread Company is considering building a new production facility that will cost $46,500. The expected cash inflow from this new facility is estimated to be $4,600 per year. Calculate the payback period for this investment. What does the payback period calculation not tell Homemade Bread Company that it needs to know?

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