Advanced management accounting - Assignment Example

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Advanced management accounting

The net present value method is usually used to calculate the economic viability of a project and it is used to determine if the project is economically viable or it is not. The advantage of using the NPV criteria in the valuation of a project is the fact that the method has a clear decision making process. In evaluating a project or product, if the net present value is positive, then the project should be accepted by the management because the product or project would benefit the company (Cadenhead, 1970, 80).If the net present value is a negative, then the project or product should be rejected. If the net present value is equal t zero, then the management would be at a break even and any decision taken would not be harmful to the profitability of the company (Barton, 1999, 234). ...
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Summary

Smart electronics Date Year 1 Year 2 Year 3 Year 4-11 Year 12 sales 70*6000= 420000 12000*70= 840000 15000*70= 1050000 18000*70= 1260000 18000*70= 1260000 Less variable costs 6000*30= (180000) 12000*30= (360000) 15000*30= (450000) 18000*30= (540000) 18000*30= (540000) Fixed costs (270000) (270000) (270000) (270000) (270000) Advertising costs (360000) (360000) (300000) (240000) (240000) Salvage value 30000 Cash inflows (390000) (150000) 30000 210000 240000 b) NPV NPV= discounted cash inflows- cash outflow Discounting rate @14% cash flow Discounted cash flow 1 0.8772 (390000) -342108 2 0.7695 (150000) -115425 3 0.6749 30000 20247 4 0.5921 210000 124341 5 0.5193 210000 109053 6 0.455…
Author : wconroy

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