# Free Managerial Accounting Templates - Excel - Excel

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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 P12-4A, Prestige Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the
\$60,000 price tag for a new truck would represent a major expenditure. Jenna Lind, owner of the garage, has compiled the following
estimates in trying to determine whether the tow truck should be purchased.
Initial cost                                       \$60,000
Estimated useful life                                     8 years
Net annual cash flows from towing                   \$8,000
Overhaul costs (end of year 4)                      \$5,000
Salvage value                                      \$15,000
Jenna's good friend, Reid Shaw, stopped by. He is trying to convince Jenna that the tow truck will have other benefits that Jenna hasn't even
considered. First, he says, cars that need towing need to be fixed. Thus, when Jenna tows them to her facility her repair revenues will
increase. Second, he notes that the tow truck could have a plow attached to it, thus saving Jenna the cost of plowing her parking lot. (Reid
will give her a used blade for free if Jenna will plow Reid's driveway.) Third, he notes that the truck will generate goodwill; people who are
rescued by Jenna's tow truck will feel grateful and might be more inclined to use her service station in the future, or buy gas there. Fourth,
the tow truck will have "Prestige Auto Care" on its doors, hood, and back tailgate - a form of free advertising wherever the tow truck goes.
Reid estimates that, at a minimum, these benefits would be worth the following:
Additional annual net cash flows from repair work                                           3000
Annual savings from plowing                                                                  500
Additional annual net cash flows from customer "goodwill"                                   1000
The company's cost of capital is              9%

Instructions:
(a) Calculate the net present value, ignoring the additional benefits described by Reid. Should the tow truck be purchased?
Using the original estimates, the net present value is calculated as follows:
Cash                        9% Discount                     Present
Flows             X             Factor               =        Value
Title                                             Amount         X              PV Formula          =         Formula
Title                                             Amount         X              PV Formula          =         Formula
Title                                             Amount         X              PV Formula          =         Formula
Formula
Title                                                                                                          Amount
Title                                                                                                         Formula

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

Cash                          9% Discount                      Present
Flows             X             Factor               =          Value
Title                                           Formula        X              PV Formula          =          Formula
Title                                           Amount         X              PV Formula          =          Formula
Title                                           Amount         X              PV Formula          =          Formula
Formula
Title                                                                                                         Amount
Title                                                                                                        Formula

(c) Suppose Reid has been overly optimistic in his 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: adb562ad-5d8b-4eae-8c03-e7375e80f781.xls, Tab: Problem P12-4A, Page 1 of 2, 7/5/2011, 9:16 PM
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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