# Name Date Instructor

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```					               Name:                                                                              Date:
Instructor:                                                                          Course:
Managerial Accounting, 3rd Edition, by Weygandt, Kieso, and Kimmel
Solving Managerial Accounting Problems Using Microsoft Excel for Windows by Rex A Schildhouse
Problem P12-4B, The Watertown Sanitation Company is considering the purchase of a new garbage truck. The                        \$77,000 price tag for
a new truck would represent a major expenditure for the company. Kalia Vang, owner of the company, has compiled the following
estimates in trying to determine whether the garbage truck should be purchased.
Initial cost                                    \$77,000
Estimated useful life                                  10 years
Net annual cash flows from towing               \$12,000
Overhaul costs (end of year 4)                   \$7,000
Salvage value                                   \$15,000
One of the employees is trying to convince Kalia that the truck has other merits that were not considered in the initial estimates. First, the new
truck will be more efficient, with lower maintenance and operating costs. Second it will be safer. Third, it has the ability to handle recycled
materials at the same time as trash, thus offering a new revenue source. Estimates of the minimum value of these benefits are as follows:

Additional savings from reduced operating costs                                               400
Annual savings from reduced maintenance costs                                                 800
Additional annual net cash savings from reduced employee absence                              500
Additional annual net cash inflows from recycling                                             300
The company's cost of capital is         10%

Instructions:
(a) Calculate the net present value, ignoring the additional benefits. Should the truck be purchased?
Using the original estimates, the net present value is calculated as follows:
Cash                        10% Discount                        Present
Flows              X             Factor               =           Value
Present value of net annual cash flows            Formula         X               PV Formula         =           Formula
Title                                             Amount          X               PV Formula         =           Formula
Title                                             Amount          X               PV Formula         =           Formula
Formula
Title                                                                                                             Amount
Net present value                                                                                                Formula

(b) Calculate the net present value, incorporating the additional benefits. Should the garbage truck be purchased?
The net present value based on the revised estimates is as follows:

Cash                          10% Discount                        Present
Flows              X             Factor                =           Value
Present value of net annual cash flows           Formula         X              PV Formula           =           Formula
Title                                            Amount          X              PV Formula           =           Formula
Title                                            Amount          X              PV Formula           =           Formula
Formula
Title                                                                                                             Amount
Net present value                                                                                                Formula

Calculation area as desired.

(c) Suppose management has been overly optimistic in the assessment of the value of the additional benefits. At a minimum, how much would
the additional benefits have to be worth in order for the project to be accepted?

FileName: 68489093-4657-4d41-803c-d4768069ce59.xls, Tab: Problem P12-4B, Page 1 of 2, 2/3/2011, 10:12 AM
Instructions for the Microsoft Excel Templates

Detail and information on Excel is contained within the manual.

Striking the "F1" key or following the path "Windows>Excel Help" will invoke the Office Assistant
and bring up one of several help menus.

Type your name into the cell "D5". This will be copied by formula to the rest of the pages as required.

Type the due date of your problem into cell "I5". This will be copied by formula to the rest of the pages as required.

Type the instructor's name into cell "D6". This will be copied by formula to the rest of the pages as required.

Type the course identifier into cell "I6". This will be copied by formula to the rest of the pages as required.

The problem is identified for you in cell "B7".

In "DATE" cells enter the date in any of several formats and Excel will format it correctly.

If more than one page is preformatted into the problem, page breaks are preset and formulas are
set to copy the header into the remaining pages.

Place the proper account title in the cell where the word "ACCOUNT" appears on the template.

Place the amount in the cell where the word "AMOUNT" appears on the template. A formula may be placed in

Enter a number like 914 to signify units or gallons where the word "NUMBER" appears.

Write a formula into cells where the word "FORMULA" appears. In these cells, an amount calculated outside of

Place the explanation for the entry in the cell where the word "EXPLANATION" appears on the template.

Insert the account number where "ACCT #" appears on the template during posting.

Insert the journal reference where "JOURN #" appears on the template during posting.

Insert the title in the cell where "TITLE" appears on the template.

The print area is defined to fit onto 8 1/2" X 11" sheets in portrait or landscape mode as required.

The gray filled cells define the perimeter of the problem and the print area.

The problem is formatted for whole dollars with comma separations (no cents) except where required.

The display may have "Freeze Pane" invoked so column titles remain visible during data entry.

Negative values may be shown as (\$400) vice -\$400.

Enter a string like: (\$259,417 X 12 months) + (0.3651 X 5,434,631) where the word TEXT appears.

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