Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN: 9781305970663
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 19, Problem 6CE
1.
To determine
Ascertain the after-tax cash flows, under the income approach.
2.
To determine
Ascertain the after-tax cash flows for each item of the income statement and its total, under the decomposition approach.
3.
To determine
Prepare a spreadsheet format for the decomposition approach, for each income item and its total.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.
Cuenca Company is considering the purchase of new equipment that will speed up the process for producing flash drives. The equipment will cost $7,200,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project follow:
Year
Cash Revenues
Cash Expenses
1
$8,000,000
$6,000,000
2
8,000,000
6,000,000
3
8,000,000
6,000,000
4
8,000,000
6,000,000
5
8,000,000
6,000,000
Kathy Shorts is evaluating an investment in an information system that will save $240,000 per year. She estimates that the system will last 10 years. The system will cost $1,248,000. Her company's cost of capital is 10%.
Elmo Enterprises just announced that a new plant would be built in Helper, Utah. Elmo told its stockholders that the plant has an expected life of 15 years and an expected IRR equal to 25%. The cost of building the…
a manufacturing company bought a new machine for $150,000. the machine will last ten years and will be depreciated using the straight-line method. the estimate salvage value of the machineis zero and should generate a yearly cash inflow of $39,000
Requirement: what is the accounting rate of return? (ignoring taxes)
FNV Industries is considering the purchase of a new processing machine.
The initial cost of the machine will be $246,410.
The expected increase in net cash inflow as a result of the purchase is:
$90,666 for the first year,
$73,107 for the second year
The machine will have a salvage value of $0 at the end of the second year. Assume that all cash inflows are received at the end of the year.
At a discount rate of 6%, what is the net present value of the machine? Round your answer to the nearest whole dollar.
Chapter 19 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 19 - Explain the difference between independent...Ch. 19 - Explain why the timing and quantity of cash flows...Ch. 19 - Prob. 3DQCh. 19 - Prob. 4DQCh. 19 - What is the accounting rate of return?Ch. 19 - What is the cost of capital? What role does it...Ch. 19 - Prob. 7DQCh. 19 - Explain how the NPV is used to determine whether a...Ch. 19 - Explain why NPV is generally preferred over IRR...Ch. 19 - Prob. 10DQ
Ch. 19 - Prob. 11DQCh. 19 - Prob. 12DQCh. 19 - Prob. 13DQCh. 19 - Prob. 14DQCh. 19 - Prob. 15DQCh. 19 - Jan Booth is considering investing in either a...Ch. 19 - Prob. 2CECh. 19 - Carsen Sorensen, controller of Thayn Company, just...Ch. 19 - Manzer Enterprises is considering two independent...Ch. 19 - Keating Hospital is considering two different...Ch. 19 - Prob. 6CECh. 19 - Prob. 7ECh. 19 - Prob. 8ECh. 19 - Each of the following scenarios is independent....Ch. 19 - Roberts Company is considering an investment in...Ch. 19 - NPV A clinic is considering the possibility of two...Ch. 19 - Refer to Exercise 19.11. 1. Compute the payback...Ch. 19 - Buena Vision Clinic is considering an investment...Ch. 19 - Consider each of the following independent cases....Ch. 19 - Gina Ripley, president of Dearing Company, is...Ch. 19 - Covington Pharmacies has decided to automate its...Ch. 19 - Postman Company is considering two independent...Ch. 19 - Prob. 18ECh. 19 - Prob. 19ECh. 19 - Prob. 20ECh. 19 - Assume there are two competing projects, X and Y....Ch. 19 - Prob. 22ECh. 19 - Assume that an investment of 100,000 produces a...Ch. 19 - Prob. 24PCh. 19 - Prob. 25PCh. 19 - Prob. 26PCh. 19 - Kent Tessman, manager of a Dairy Products...Ch. 19 - Friedman Company is considering installing a new...Ch. 19 - Okmulgee Hospital (a large metropolitan for-profit...Ch. 19 - Mallette Manufacturing, Inc., produces washing...Ch. 19 - Jonfran Company manufactures three different...Ch. 19 - Prob. 32P
Knowledge Booster
Similar questions
- For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. An asset with an expected life of eight years is to be purchased for $10,000. Annual revenue is estimated at $5,000 with annual expenses of $1,00. At the end of the 8th year, the asset is expected to be sold for $2,000. The interest rate is 10%. Use the AW method to determine whether the asset should be purchased or not.arrow_forwardKendra's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Kendra's Bakery has a 10% after-tax required rate of return and a 30% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. E (Click the icon to view the estimated cash flows for the oven.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the reguirements. Requirement 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. a. Net present value. (Use factors to three decimal places, X.XXX. Round intermediary calculations and your final…arrow_forwardEmma's Bakery plans to purchase a new oven for its store. The oven has an estimated useful life of 4 years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Emma's Bakery has a 10% after-tax required rate of return and a 30% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment in the oven and its estimated terminal disposal value. Assume all cash flows occur at year-end except for initial investment amounts. E (Click the icon to view the estimated cash flows for the oven.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. Data Table i Requirements А В D E 1 Relevant Cash Flows at End of Each Year 1. Calculate (a) net present value, (b) payback period, and (c) internal rate of return. 2. Calculate accrual accounting rate of return based on…arrow_forward
- A milling machine costing $18,000 will be depreciated using 7-year MACRS. The machine will be sold at the end of year 8 for $1000. The combined tax rate is 25%, and the MARR is 10%. What is the present worth of the after-tax cash flows? Submit your spreadsheet. Answer to the nearest whole dollar without the $ sign.arrow_forwardPerform an after-tax cash flow analysis on the following data on the replacement of an old equipment with a more energy-afficient version. Use an effective tax rate of 30% and the straight-line method for depreciation. Initial Investment: 500,000Useful life: 5 yearsTerminal Value: 50,000Annual Revenues, 240,000 Annual Expenses Power: 75,000Maintenance: 25,000Property Insurance: 20,000 1. If the after-tax MARR is 12%, what is the net present worth (in pesos) of replacing the old equipment? (2 decimal places) 2. After evaluation, is the replacement of the old equipment economically feasible?arrow_forwardClemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's Year 1 cash flow? Equipment cost (depreciable basis) $77,000 Straight-line depreciation rate 33.333% Sales revenues, each year $70,000 Operating costs (excl. depr.) $28,000 Tax rate 35.0% $36,800 $36,772 $36,993 $35,990 $36,283arrow_forward
- To open a new store, Finch Tire Company plans to invest $250,000 in equipment expected to have a five-year useful life and no salvage value. Finch expects the new store to generate annual cash revenues of $322,000 and to incur annual cash operating expenses of $187,000. Finch's average income tax rate is 35 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash inflow from operations for each of the first four years after Finch opens the new store. Note: Negative amounts should be indicated by a minus sign. Year 1 Year 2 Year 3 Year 4 Net cash Inflow or Outflowarrow_forwardTo open a new store, Zachary Tire Company plans to invest $378,000 in equipment expected to have a seven-year useful life and no salvage value. Zachary expects the new store to generate annual cash revenues of $322,000 and to incur annual cash operating expenses of $192,000. Zachary's average income tax rate is 40 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash inflow from operations for each of the first four years after Zachary opens the new store. Note: Negative amounts should be indicated by a minus sign. Year 1 Year 2 Year 3 Year 4 Net cash Inflow or Outflowarrow_forwardTo open a new store, Benson Tire Company plans to Invest $280,000 in equipment expected to have a five-year useful life and no salvage value. Benson expects the new store to generate annual cash revenues of $320,000 and to incur annual cash operating expenses of $192,000. Benson's average Income tax rate is 35 percent. The company uses straight-line depreciation. Required Determine the expected annual net cash Inflow from operations for each of the first four years after Benson opens the new store. Note: Negative amounts should be indicated by a minus sign. Year 1 Year 2 Year 3 Year 4 Net cash Inflow or Outflowarrow_forward
- Following problem, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. A set of office equipment costs $80,000 and has a useful life of 8 years. Its estimated market value at the end of the 8th year is $2,000. Determine the depreciation amount on the 5th year and the book value at the end of the 3rd year using: Straight Line Method Double Declining Balance Method Sum-of-Years Digits Method Declining Balance Method with Switchover to SL MACRS GDS (assume that the assets will be disposed of on the 3rd year) NO EXCELarrow_forwardCrazy Carnival Industries is thinking of purchasing a machine that will produce plastic junkanoo dresses. The machine would be used for five years, would cost $35,000, would have a $5,000 residual value, and would increase annual net cash inflows by $8,800. Crazy Carnival uses the straight-line method of depreciation. Using the above facts and the present value factors below, calculate the accounting rate of return (if necessary, round off and carry to one decimal place)arrow_forwardThe management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $124,200 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the payback period for the proposed investment. (Round your answer to 1 decimal place.)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning