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1. Management Accounting

QUESTION

Question 1

Accounting rate of return formula is average annual profits divided by average investment by the company (Al-Mutairi, Naser & Saeid, 2018).

Average annual profits= (£15,000+£25,000+£25,000+£20,000+£30,000)/5=£23,000

Average Investment= (£115,000+£25,000)/2=£70,000

Accounting rate of return=£23,000/£70,000=32.86%

Question 2

2.1:

Payback period is the duration taken to recover initial funds used in an investment.  The shorter the payback period the better (Al-Mutairi, Naser & Saeid, 2018). The potential investment with the shorter payback period should therefore be pursued in this case.

2.2:

The disadvantages of using payback period approach   are that it does not take into account the time value of money, does not take into account cash flows beyond the payback period and is unrealistic as it ignores normal business scenarios (Gul, Gul & Haider, 2018).

Question 3

3.1:

Investment X appear more lucrative as it generates more cash flows than Investment Y over the lifetime of the investments.

3.2

Subject Pages Style Business 4 APA

Management Accounting Assignment

Question 1

Accounting rate of return formula is average annual profits divided by average investment by the company (Al-Mutairi, Naser & Saeid, 2018).

Average annual profits= (£15,000+£25,000+£25,000+£20,000+£30,000)/5=£23,000

Average Investment= (£115,000+£25,000)/2=£70,000

Accounting rate of return=£23,000/£70,000=32.86%

Question 2

2.1:

Payback period is the duration taken to recover initial funds used in an investment.  The shorter the payback period the better (Al-Mutairi, Naser & Saeid, 2018). The potential investment with the shorter payback period should therefore be pursued in this case.

2.2:

The disadvantages of using payback period approach   are that it does not take into account the time value of money, does not take into account cash flows beyond the payback period and is unrealistic as it ignores normal business scenarios (Gul, Gul & Haider, 2018).

Question 3

3.1:

Investment X appear more lucrative as it generates more cash flows than Investment Y over the lifetime of the investments.

3.2

 Investment X Discount factor -8% Net present value Cash flow Year 1: £400,000 0.926 £370,400 Cash flow Year 2: £500,000 0.857 £428,500 Cash flow Year 3: £500,000 0.794 £397,000 Cash flow Year 4: £600,000 0.735 £441,000 Cash flow Year 5: £600,000 0.681 £408,600 TOTAL: £2,045,500 Net Present Value of X =£2,045,500-£1,200,000=£845,500

 Investment Y Discount factor-8% Net present value Cash flow Year 1: £900,000 0.926 £833,400 Cash flow Year 2: £400,000 0.857 £342,800 Cash flow Year 3: £500,000 0.794 £397,000 Cash flow Year 4: £600,000 0.735 £441,000 TOTAL: £2,014,200 Net Present Value of X =£2,014,200-£1,100,000=£914,200

3.3

The business should pursue Investment Y because as it returns a higher net present value of £914,200 as compared to investment X whose net present value is £845,500

Question 4

It implies that the internal rate of return is higher than 8% as the net present value should be equal to zero (Onuorah,2019).

### References

Al-Mutairi, A., Naser, K., & Saeid, M. (2018). Capital budgeting practices by non-financial

companies listed on Kuwait Stock Exchange (KSE). Cogent Economics & Finance, 6(1) doi:http://dx.doi.org/10.1080/23322039.2018.1468232

Gul, S., Gul, H., & Haider, M. (2018). The review and use of capital budgeting

investment techniques in evaluating investment projects: evidence from manufacturing companies listed on Pakistan Stock Exchange (PSE). City University Research Journal, 8(2), 247-260. Retrieved from https://www.proquest.com/scholarly-journals/review-use-capital-budgeting-investment/docview/2102341540/se-2?accountid=45049

Onuorah, A. C. (2019). Appraisal of capital budgeting techniques and performance of

manufacturing firms in Nigeria. Journal of Management Information and Decision Sciences, 22(4), 462-470. Retrieved from https://www.proquest.com/scholarly-journals/appraisal-capital-budgeting-techniques/docview/2424965589/se-2?accountid=45049

Appendix

 Appendix A: Communication Plan for an Inpatient Unit to Evaluate the Impact of Transformational Leadership Style Compared to Other Leader Styles such as Bureaucratic and Laissez-Faire Leadership in Nurse Engagement, Retention, and Team Member Satisfaction Over the Course of One Year