The management of J Co have heard about the concept of the time value of money.
Required:
(i) Complete the gaps in the following statement: The time value of money means that $1 now is worth (GAP 1) than $1 in the future. The reasons for this are risk, (Gap 2) and potential for earning a return e.g. interest.
(ii) Using a discount rate of 8%, and assuming that the cash flows arise at the end of a year, calculate the discounted payback period.
(i) Gap 1 more
Gap 2 inflation
(ii) Year Cash flow x DF Cumulative cashflow
0 -18,750 -18,750
1 5,000 x 0.926 = 4,630 -14,120
2 5,000 x 0.857 = 4,285 -9,835
3 5,000 x 0.794 = 3,970 -5,865
4 5,000 x 0.735 = 3,675 -2,190
5 5,000 x 0.681 = 3,405 +1,215
As the cash flows arise at the end of the year payback will be 5 years Alternative working
The project will payback when $18,750 = $5,000 x AF @ 8%
AF(1-n)=3.75
The annuity factor for 4 years is 3.312, and 5 years is 3.993. Therefore the payback must occur at 5 years as the cash flows arise at the end of the year.
多做几道
【单项选择题】
What was the adverse material price variance?
What was the favourable material usage variance?
【单项选择题】
What was the total direct materials variance?
What was the total direct labour variance?
What was the total direct variable overheads variance?
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