Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed



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solutions-manual-to-bhimani-et-al-management-and-cost-accounting-pearson-2012-1
Present-value factors
24%
3.020 3.020
IRR rate

3.000 26%
2.885

Difference
0.135 0.020 Internal rate of return
= 24% +




0.020 0.135 (2%)
= 24% + (0.148) (2%) = 24.30%
2
Let the minimum annual cash savings be €X. Then we want
X (3.889)
= €120,000

X
=
120, 000 3.889

= €30,856 Carmelo, SA, would want annual cash savings of at least €30,856 for the net present value of the investment to equal zero. This amount of cash savings would justify the investment in financial terms.
3
When the manager is uncertain about future cash flows, the manager would want to do sensitivity analysis, a form of which is described in requirement 2. Calculating the minimum cash flows necessary to make the project desirable gives the manager a feel for whether the investment is worthwhile or not. If the manager were quite certain about the future cash-operating cost savings, the approaches in requirement
1 would be preferred.

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