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# Financial Management and Cost Accounting

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1. Crown Company is considering purchase of equipment that costs \$60,000. If the useful life is expected to be 5 years and Crown's required rate of return is 10%, what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable?

2. An investment that costs \$5,000 will produce annual cash flows of \$2,000 for a period of 4 years. Given a desired rate of return of 10%, what is the present value index that the investment will generate?

3. Bush Company produced 8,000 units of inventory and sold 6,000 of them. The company incurred the following production costs:
Variable manufacturing cost: \$6.00 per unit
Fixed manufacturing overhead cost: a total of \$30,000
Assuming the company sells its product at a price of \$12 per unit, what is the amount of net income under absorption costing?

4. Graves Company is considering purchase of equipment that costs \$60,000 and is expected to offer annual cash inflows of \$19,000. Graves' minimum required rate of return is 10%. How many years must the cash flows last, for the investment to be acceptable?

5. Arthur Company is considering a capital project that will return \$100,000 each year for five years. At the company's hurdle rate of 10%, the present value of the annuity is \$379,078. What will be the company's return on investment in Year 1?
a. \$37,908
b. \$62,092
c. \$100,000
d. None of the other answers are correct.

#### Solution Preview

Managerial Accounting and Financial Management Questions

1. Crown Company is considering purchase of equipment that costs \$60,000. If the useful life is expected to be 5 years and Crown's required rate of return is 10%, what is the minimum annual cash inflow that the equipment must offer for the investment to be acceptable?

Solution:
The minimum annual cash inflow that the equipment must offer for the investment to be acceptable is \$16,000 per year, this is so because the IRR on the project is 10% when the cash inflow is \$16,000. Therefore, the project breaks even with this annual cash inflow.

2. An investment that costs \$5,000 will produce annual cash flows of ...

#### Solution Summary

Detailed look at investment acceptability using various financial management and management accounting techniques

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