Accounting for Managers: Interpreting accounting information for decision-making

SOLUTIONS TO QUESTIONS 429

Table A2.21

A B C Total

No. units 150,000 200,000 350,000 700,000
Sales revenue 7,500,000 7,000,000 8,750,000 23,250,000
Variable costs 3,000,000 3,400,000 4,900,000 11,300,000

Contribution (total) 4,500,000 3,600,000 3,850,000 11,950,000
Average contribution per unit of volume £17. 07

Table A2.22

Col A Col B

Year 0

Col C

Year 1

Col D

Year 2

Col E

Year 3

Cash flows 10,000 10,000 10,000

Present value 22,459

Initial investment −18,000

NPV 4,459

Solutions for Chapter 12

12.1
Formula for present value=+NPV (16%, C3:E3). The cash flows are entered in columns C
(Year 1) to E (Year 3). See Table A2.22.
To calculate IRR using the spreadsheet function, a negative figure (the initial cash
investment) must be part of the range of values.
Formula for IRR=+IRR (B3:E3).

Year 0 Year 1 Year 2 Year 3

Cash flows −18,000 10,000 10,000 10,000

IRR 31%

12.2
See Table A2.23.

12.3
Payback

ProjectA 2.5years ( 100 + 200 + 1 / 2 × 50 )

ProjectB 3years ( 40 + 100 + 210 )

ProjectC 2years ( 200 + 150 )