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 7E
1.
To determine
Calculate the payback period for a tracker.
2.
To determine
Calculate the accounting
3.
To determine
Calculate the payback period and accounting rate of return for building.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Novak Company owns a garage and is contemplating purchasing a tire retreading machine. Novak projects a net cash flow from the retreading machine of $12,200 annually for 7 years. It estimates a salvage value of $9,100 at the end of the asset’s useful life. Novak hopes to earn a return of 10% on such investments. What is net present value?
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…
Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $ 22,660. Each
project will last for 3 years and produce the following net annual cash flows.
Year
AA
BB
CC
1
$7,210
$ 10,300
$ 13,390
9,270
10,300
12,360
3
12,360
10,300
11,330
Total
$ 28,840
$ 30,900
$ 37,080
The equipment's salvage value is zero, and Doug uses straight-line depreciation. Doug will not accept any project with a cash
payback period over 2 years. Doug's required rate of return is 12%. Click here to view the factor table.
(a)
Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.)
AA
years
BB
years
CC
years
Which is the most desirable project?
The most desirable project based on payback period is
Which is the least desirable project?
The least desirable project based on payback period is
(b)
Compute the net present value of each project. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or…
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
- 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)arrow_forwardFollow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as you complete the requirement below. Woodard Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines. The outlay required is $700,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 2 3 4 5 $1,400,000 1,400,000 1,400,000 1,400,000 1,400,000 $1,200,000 1,200,000 1,200,000 1,200,000 1,200,000 Required: Compute the investment's Net Present Value, assuming a required rate of return of 8 percent. Round present value calculations and your final answer to the nearest dollar. NPV = $ Xarrow_forwardCrane's Custom Construction Company is considering three new projects, each requiring an equipment investment of $27,280. Each project will last for 3 years and produce the following net annual cash flows. Year AA BB CC 1 $8,680 $12,400 $16,120 2 11,160 12,400 14,880 3 14,880 12,400 13,640 Total $34,720 $37,200 $44,640 The equipment's salvage value is zero, and Crane uses straight-line depreciation. Crane will not accept any project with a cash payback period over 2 years. Crane's required rate of return is 12%. Click here to view PV table. (a) Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) AA BB BB years years CC yearsarrow_forward
- Striped Potato is evaluating a project that would require the purchase of a piece of equipment for $365,000 today. During year 1, the project is expected to have relevant revenue of $216,000, relevant costs of $57,000, and relevant depreciation of $84,000. Striped Potato would need to borrow $365,000 today to pay for the equipment and would need to make an interest payment of $14,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $44,000. What is the tax rate expected to be in year 1?arrow_forwardDoug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,100. Each project will last for 3 years and produce the following net annual cash flows. Year 1 2 3 (a) AA BB Total $29,400 $31,500 AA BB $7,350 $10,500 $13.650 9,450 10,500 12,600 10,500 CC The equipment's salvage value is zero, and Doug uses straight-line depreciation. Doug will not accept any project with a cash payback period over 2 years. Doug's required rate of return is 12%. Click here to view the factor table. Which is the most desirable project? 12,600 Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.) 11.550 Which is the least desirable project? $37.800 years years years The most desirable project based on payback period is The least desirable project based on payback period is.arrow_forwardNational Integrated Systems (NIS), a global provider of heating and air conditioning is planning a project whose data is provided below. The project’s equipment has a 3 year tax life after which its salvage value will be zero. The machinery will be depreciated on a straight line basis over three years. Revenues and other operating costs are expected to be constant over the project’s life. What is the project’s cash flow in Year 1? Equipment Cost = $130,000Depreciation rate = 33.33%Annual Sales Revenue= $120,000Operating Costs (ex Depreciation) = $50,000 Tax Rate = 35%arrow_forward
- Jack bought a rice milling equipment amounting to 3,145,000.00, and is expected to generate 546,500.00 of annual cash revenues and 96,500.00 of annual cash expenses. At the end of 10-year life of the equipment, the disposal value is 47,000. Ignoring income taxes, what is the payback period?arrow_forwardXYZ is evaluating a project that would require the purchase of a piece of equipment for $440,000 today. During year 1, the project is expected to have relevant revenue of $786,000, relevant costs of $201,000, and relevant depreciation of $132,000. XYZ would need to borrow $440,000 today to pay for the equipment and would need to make an interest payment of $33,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 21.96% but less than 26.61% A rate less than 21.96% or a rate greater than 46.34% A rate equal to or greater than 31.02% but less than 38.39% A rate equal to or greater than 38.39% but less than 46.34% A rate equal to or greater than 26.61% but less than 31.02%arrow_forwardLaura Drake wishes to estimate the value of an asset expected to proved cash inflows of $4,000 for each of the next 4 years and $21,749 in 5 years. Her research indicates that she must earn 5% on low risk assests, 7% on average risk assets, and 13% on high risk assests. a. Determine what is the most Laura should pay for the asset if it is classififed as (1) low risk, (2) average risk, and (3) high risk. b. Suppose Luara is unable to assess the risk of the asset and wants to be certain she's making a good deal. On a the basis of your finding in part a, what is the most she should pay? Why? c. All else being the same, what effect does increasing risk have on the value of an asset? Explain in light of your finding in part a.arrow_forward
- Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be $55,000 and that annual disbursement. other than income taxes will be about $18,000. The property is expected to appreciate at the annual rate of 5%. Barbara expects to retain the property for 20 years once it is acquired. Then it will be depreciated on the basis of the 39-year real-property class (MACRS), assuming that the property would be placed in service on January 1.Barbara's marginal tax rate is 30%, and her MARR is 10%. What would be the minimum annual total of rental receipts that would make the investment break-even'?arrow_forwardhe owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $25,000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,000 in after-tax savings each year during its life (including the depreciation tax shield). Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of: (a) 8 percent, (b) 10 percent, and (c) 12 percent. (Round your final answers to 2 decimal places.)arrow_forwardBaird Bros. Construction is considering the purchase of a machine at a cost of $202,000. The machine is expected to generate cash flows of $37,000 per year for 10 years and can be sold at the end of 10 years for $27,000. Interest is at 11%. Assume the machine purchase would be paid for on the first day of year one, but that all other cash flows occur at the end of the year. Ignore income tax considerations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:a. What is the net present value of the cash flows?b. Determine whether Baird should purchase the machine.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