Category: Business and Management

Showing 1612–1620 of 1959 results

• Prepare general journal entries

  $3.00

  a.	To launch the company, Jenna Aracel, the owner, invested $250,000 cash, office equipment with a value of $9,800, and $70,000 of drafting equipment in exchange for common stock.
  b.	The company purchased land worth $54,000 for an office by paying $8,800 cash and signing a long-term note payable for $45,200.
  c.	The company purchased a portable building with $56,000 cash and moved it onto the land acquired in b.
  d.	The company paid $4,000 cash for the premium on an 18-month insurance policy.
  e.	The company completed and delivered a set of plans for a client and collected $6,100 cash.
  f.	The company purchased $32,000 of additional drafting equipment by paying $11,000 cash and signing a long-term note payable for $21,000.
  g.	The company completed $16,000 of engineering services for a client. This amount is to be received in 30 days.
  h.	The company purchased $1,850 of additional office equipment on credit.
  i.	The company completed engineering services for $24,000 on credit.
  j.	The company received a bill for rent of equipment that was used on a recently completed job. The $1,445 rent cost must be paid within 30 days.
  k.	The company collected $8,000 cash in partial payment from the client described in transaction g.
  l.	The company paid $1,500 cash for wages to a drafting assistant.
  m.	The company paid $1,850 cash to settle the account payable created in transaction h.
  n.	The company paid $1,045 cash for minor maintenance of its drafting equipment.
  o.	The company paid $9,500 cash in dividends.
  p.	The company paid $2,200 cash for wages to a drafting assistant.
  q.	The company paid $3,600 cash for advertisements on the Web during June.

   

  Required:
  1.	Prepare general journal entries to record these transactions.

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• Tackling the free rider problem

  $10.00

  Tackling the free rider problem

  How might the free rider problem be tackled differently in the cases of:

  A) paying for Australia’s national defense?

  B) paying for public transport in any of the capital cities?

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• Post each transaction to the T accounts

  $3.00

  Transactions

  May 1          Terry purchased computer equipment for $8,400, paying $1,000 now, and issuing a promissory note for the balance; the note is due in monthly installments of $500 plus interest at 10% on the unpaid balance.

  8           Terry records service revenue earned: $3,200 from cash customers; $12,000 for customers billed for completed services.

  22           Common stock is issued for land with a fair value of $35,000.

  31           An invoice for $1,200 is received from the company’s advertising agency for ads which were run on radio and TV during May; the invoice is due in 30 days.

  Refer to the transactions for Terry Company.

  Use the transactions incurred by the Terry Corporation to set up T accounts and post each transaction to the T accounts.

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• Paying for each formula unit

  $1.00

  If you paid $1.54 for every 250 g ofNaHCO₃, how much would you be paying for each formula unit?

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• The Car Loan Alternatives

  $5.00

  This issue has three parts.

   You are considering the purchase of new car. You have negotiated with the salesperson at the dealership and you can purchase the vehicle for $30,000. You have $8,000 that you can use as a down payment.

   Prior to going into the dealership, you have set an absolute limit of $375 for the amount of monthly payments that you can make on the car. You are willing to finance over five years but you cannot exceed the payment of $375 per month. The dealer is willing to offer you financing at an annual rate of 6.5% for a 5-year loan. The dealer is willing to offer 5.5% financing on a 4-year loan.

  CalculatorWeb’s loan calculator lets you specify any single item to calculate if the other four variables are specified. The value should be entered as whole numbers without commas.

        1. Can you meet your payment restriction and finance the amount required for the car?

      2. What is the maximum amount that you can borrow to meet your payment restriction if the loan is to be paid off in 5 years?

      3. Suppose that you are limited to paying $375 per month but you want to pay the loan off in 4 years and not 5 years. What is the maximum amount that you can borrow

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• Financial Analysis of DPR Construction Inc. Case Study

  $20.00
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  The Final Project will involve applying the concepts learned in class to an analysis of a company using data from its annual report. Using the concepts from this course, you will analyze the strengths and weaknesses of the company and write a report either recommending or not recommending purchase of the company stock.

  Research Tip: The Mergent database in the Ashford University Library contains company profiles and financial information for publicly traded companies and their competitors. To access this database enter the Ashford Library and select Find Articles and More in the top menu panel. Next, select Databases A-Z and go to section M for Mergent. For help with using Mergent, use Mergent Online Quick Tips.

  For help with reading an annual report access this handy guide from Money Chimp.

  The completed report should include:

  1.       An introduction to the company, including background information.

  2.       A complete and thorough financial statement review.

  3.       Pro Forma financial statements (Balance Sheet and Income Statement) for the next fiscal year, assuming a 10 percent growth rate in sales and Cost of Goods Sold (COGS) for the next year.

  4.       Complete ratio analysis for the last fiscal year using at least two ratios from each of the following categories:

  1.       Liquidity

  2.       Financial leverage

  3.       Asset management

  4.       Profitability

  5.       Market value

  5.       A calculation of Return on Equity (ROE) using the DuPont system.

  6.       Assessment of management performance by calculating Economic Value Added (EVA).

  7.       A synopsis of your findings, including your recommendations and rationale for whether or not to purchase stock from this company.

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• Capital Budgeting Decisions: Multiple Choice

  $5.00

  Capital Budgeting Decisions

  Multiple Choice

  11. Some investment projects require that a company increase its working capital. Under the net present value method, the investment and eventual recovery of working capital should be treated as:
  12. A) an initial cash outflow.
  13. B) a future cash inflow.
  14. C) both an initial cash outflow and a future cash inflow.
  15. D) irrelevant to the net present value analysis.

  12. The net present value (NPV) method of investment project analysis assumes that the project’s cash flows are reinvested at the:
  13. A) internal rate of return.
  14. B) discount rate used in the NPV calculation.
  15. C) firm’s simple rate of return.
  16. D) firm’s average ROI.

  13. If taxes are ignored, all of the following items are included in a discounted cash flow analysis except:
  14. A) future operating cash savings.
  15. B) depreciation expense.
  16. C) future salvage value.
  17. D) investment in working capital.

  14. In capital budgeting computations, discounted cash flow methods:
  15. A) automatically provide for recovery of initial investment.
  16. B) can’t be used unless cash flows are uniform from year to year.
  17. C) assume that all cash flows occur at the beginning of a period.
  18. D) responses a, b, and c are all correct.

  15. The investment required for the project profitability index should:
  16. A) be reduced by the amount of any salvage recovered from the sale of old equipment.
  17. B) be reduced by the amount of any salvage recovered from the sale of the new equipment at the end of its useful life.
  18. C) be reduced by the amount of any salvage recovered from the sale of both the old and new equipment.
  19. D) none of the above is correct.

  16. A company wants to have $40,000 at the end of a five-year period through investment of a single sum now. How much needs to be invested in order to have the desired sum in five years, if the money can be invested at 10%:
  17. A) $10,551
  18. B) $8,000
  19. C) $24,840
  20. D) $12,882

  17. The following data on a proposed investment project have been provided:

  The net present value of the project would be:

  1. A) $3,730
  2. B) $0
  3. C) $32,450
  4. D) $88,370

  18. Stratford Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $9,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company’s discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is $17,000?
  19. A) $43,812
  20. B) $26,812
  21. C) $17,000
  22. D) $22,195

  19. Anthony operates a part time auto repair service. He estimates that a new diagnostic computer system will result in increased cash inflows of $1,500 in Year 1, $2,100 in Year 2, and $3,200 in Year 3. If Anthony’s required rate of return is 10%, then the most he would be willing to pay for the new computer system would be:
  20. A) $4,599
  21. B) $5,501
  22. C) $5,638
  23. D) $5,107

  20. Fossa Road Paving Company is considering an investment in a curb-forming machine. The machine will cost $240,000, will last 10 years, and will have a $40,000 salvage value at the end of 10 years. The machine is expected to generate net cash inflows of $60,000 per year in each of the 10 years. Fossa’s discount rate is 18%. What is the net present value of this machine?
  21. A) $5,840
  22. B) $37,280
  23. C) $(48,780)
  24. D) $69,640

  21. Apnea Video Rental Store is considering the purchase of an almost new minivan to use as a vehicle to deliver and pick up video tapes for customers. The minivan will cost $18,000 and is expected to last 8 years but only if the engine is overhauled at a cost of $3,000 at the end of year 3. The minivan is expected to have a $1,000 salvage value at the end of 8 years. This delivery service is expected to generate net cash inflows of $6,000 per year in each of the 8 years. Apnea’s discount rate is 14%. What is the net present value of this investment opportunity?
  22. A) $(2,826)
  23. B) $(3,801)
  24. C) $7,185
  25. D) $8,160

  22. In an effort to reduce costs, Pontic Manufacturing Corporation is considering an investment in equipment that will reduce defects. This equipment will cost $420,000, will have an estimated useful life of 10 years, and will have an estimated salvage value of $50,000 at the end of 10 years. Pontic’s discount rate is 22%. What amount of cost savings will this equipment have to generate per year in each of the 10 years in order for it to be an acceptable project?
  23. A) $50,690 or more
  24. B) $41,315 or more
  25. C) $105,315 or more
  26. D) $94,316 or more

  23. Naomi Corporation has a capital budgeting project that has a negative net present value of $36,000. The life of this project is 6 years. Naomi’s discount rate is 20%. By how much would the annual cash inflows from this project have to increase in order to have a positive net present value?
  24. A) $1,200 or more
  25. B) $2,412 or more
  26. C) $6,000 or more
  27. D) $10,824 or more

  24. A project requires an initial investment of $70,000 and has a project profitability index of 0.932. The present value of the future cash inflows from this investment is:
  25. A) $70,000
  26. B) $36,231
  27. C) $135,240
  28. D) Cannot be determined from the data provided.

  25. Bowen Company is considering several investment proposals, as shown below:

  If the project profitability index is used, the ranking of the projects would be:

  1. A) A above
  2. B) B above
  3. C) C above
  4. D) D above

  26. Information on four investment proposals is given below:

  Rank the proposals in terms of preference according to the project profitability index:

  1. A) 1, 4, 3, 2
  2. B) 4, 1, 3, 2
  3. C) 3, 4, 1, 2
  4. D) 2, 1, 4, 3

  27. Information on four investment proposals is given below:

  Rank the proposals in terms of preference using the project profitability index:

  1. A) 3, 2, 1, 4
  2. B) 2, 3, 1, 4
  3. C) 2, 1, 3, 4
  4. D) 4, 1, 2, 3

  28. The Gomez Company is considering two projects, T and V. The following information has been gathered on these projects:

  Based on this information, which of the following statements is (are) true?

  1. Project T has the highest ranking according to the project profitability index criterion.
  2. Project V has the highest ranking according to the net present value criterion.

  1. A) Only I
  2. B) Only II
  3. C) Both I and II
  4. D) Neither I nor II

  29. Major Corporation is considering the purchase of a new machine for $5,000. The machine has an estimated useful life of 5 years and no salvage value. The machine will increase Major’s cash flows by $2,000 annually for 5 years. Major uses straight-line depreciation. The company’s required rate of return is 10%. What is the payback period for the machine?
  30. A) 5.00 years
  31. B) 2.50 years
  32. C) 7.58 years
  33. D) 8.34 years

  30. Harrison Company is studying a project that would have an eight-year life and would require a $300,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project:

  The company’s required rate of return is 10%. What is the payback period for this project?

  1. A) 3 years
  2. B) 2 years
  3. C) 2.5 years
  4. D) 2.67 years

  31. An investment project requires an initial investment of $100,000. The project is expected to generate net cash inflows of $28,000 per year for the next five years. Assuming a 12% discount rate, the project’s payback period is:
  32. A) 0.28 years
  33. B) 3.36 years
  34. C) 3.57 years
  35. D) 1.40 years

  Source: CMA, adapted

  32. Mercer Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $250,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $12,000 per year to operate and maintain, but would save $55,000 per year in labor and other costs. The old machine can be sold now for scrap for $10,000. The simple rate of return on the new machine is closest to:
  33. A) 17.9%
  34. B) 7.5%
  35. C) 22.0%
  36. D) 7.2%

  33. Pearson Co. is considering the purchase of a $200,000 machine that is expected to reduce operating cash expenses by $65,000 per year. This machine, which has no salvage value, has an estimated useful life of 5 years and will be depreciated on a straight-line basis. For this machine, the simple rate of return would be:
  34. A) 10%
  35. B) 12.5%
  36. C) 20%
  37. D) 32.5%

  34. Assume you can invest money at a 14% rate of return. How much money must be invested now in order to be able to withdraw $5,000 from this investment at the end of each year for 8 years, the first withdrawal occurring one year from now?
  35. A) $24,840
  36. B) $23,195
  37. C) $21,440
  38. D) $1,755

  35. How much would you have to invest today in the bank at an interest rate of 5% to have an annuity of $1,400 per year for 5 years, with nothing left in the bank at the end of the 5 years? Select the amount below that is closest to your answer.
  36. A) $6,667
  37. B) $6,061
  38. C) $7,000
  39. D) $1,098

  36. You have deposited $15,584 in a special account that has a guaranteed interest rate. If you withdraw $3,700 at the end of each year for 5 years, you will completely exhaust the balance in the account. The guaranteed interest rate is closest to:
  37. A) 6%
  38. B) 19%
  39. C) 24%
  40. D) 4%

  37. You have deposited $16,700 in a special account that has a guaranteed interest rate of 11% per year. If you are willing to completely exhaust the account, what is the maximum amount that you could withdraw at the end of each of the next 6 years? Select the amount below that is closest to your answer.
  38. A) $3,465
  39. B) $3,089
  40. C) $2,783
  41. D) $3,947

  38. Latting Corporation has entered into a 7 year lease for a building it will use as a warehouse. The annual payment under the lease will be $4,781. The first payment will be at the end of the current year and all subsequent payments will be made at year-ends. What is the present value of the lease payments if the discount rate is 6%?
  39. A) $31,573
  40. B) $22,257
  41. C) $33,467
  42. D) $26,688

  39. Schaad Corporation has entered into a 8 year lease for a piece of equipment. The annual payment under the lease will be $2,500, with payments being made at the beginning of each year. If the discount rate is 14%, the present value of the lease payments is closest to:
  40. A) $20,000
  41. B) $7,011
  42. C) $17,544
  43. D) $13,220

  40. Tangen Corporation is considering the purchase of a machine that would cost $380,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $80,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $104,000. The company requires a minimum pretax return of 14% on all investment projects. The net present value of the proposed project is closest to:
  41. A) $104,456
  42. B) $24,456
  43. C) $133,753
  44. D) $60,936

  41. The management of Urbine Corporation is considering the purchase of a machine that would cost $350,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $79,000 per year. The company requires a minimum pretax return of 14% on all investment projects. The net present value of the proposed project is closest to:
  42. A) -$42,769
  43. B) $124,000
  44. C) -$93,877
  45. D) $56,493

  42. Riveros, Inc., is considering the purchase of a machine that would cost $120,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $29,000. The machine would reduce labor and other costs by $25,000 per year. Additional working capital of $9,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 18% on all investment projects. The net present value of the proposed project is closest to:
  43. A) -$18,050
  44. B) -$63,683
  45. C) -$10,336
  46. D) -$16,942

  43. The management of Edelmann Corporation is considering the following three investment projects:

  Rank the projects according to the profitability index, from most profitable to least profitable.

  1. A) T,S,R
  2. B) R,T,S
  3. C) S,T,R
  4. D) T,R,S

  44. Villena Corporation is considering a project that would require an investment of $48,000. No other cash outflows would be involved. The present value of the cash inflows would be $52,800. The profitability index of the project is closest to:
  45. A) 0.90
  46. B) 0.10
  47. C) 1.10
  48. D) 0.09

  45. Crowley Corporation is considering three investment projects-F, G, and H. Project F would require an investment of $21,000, Project G of $49,000, and Project H of $82,000. No other cash outflows would be involved. The present value of the cash inflows would be $21,210 for Project F, $57,820 for Project G, and $95,120 for Project H. Rank the projects according to the profitability index, from most profitable to least profitable.
  46. A) F,H,G
  47. B) G,H,F
  48. C) H,F,G
  49. D) H,G,F

  46. The management of Cantell Corporation is considering a project that would require an initial investment of $47,000. No other cash outflows would be required. The present value of the cash inflows would be $55,930. The profitability index of the project is closest to:
  47. A) 1.19
  48. B) 0.81
  49. C) 0.19
  50. D) 0.16

  47. Kautzer Corporation is considering a project that would require an investment of $418,000 and would last for 9 years. The incremental annual revenues and expenses generated by the project during those 9 years would be as follows:

  The scrap value of the project’s assets at the end of the project would be $13,000. The payback period of the project is closest to:

  5. A) 5.9 years
  6. B) 6.1 years
  7. C) 17.4 years
  8. D) 16.9 years

  48. The management of Helberg Corporation is considering a project that would require an investment of $203,000 and would last for 6 years. The annual net operating income from the project would be $103,000, which includes depreciation of $30,000. The scrap value of the project’s assets at the end of the project would be $23,000. The payback period of the project is closest to:
  49. A) 1.5 years
  50. B) 2.0 years
  51. C) 1.4 years
  52. D) 1.7 years

  49. Wombles Corporation is contemplating purchasing equipment that would increase sales revenues by $478,000 per year and cash operating expenses by $249,000 per year. The equipment would cost $738,000 and have a 9 year life with no salvage value. The annual depreciation would be $82,000. The simple rate of return on the investment is closest to:
  50. A) 19.9%
  51. B) 30.8%
  52. C) 31.0%
  53. D) 11.1%

  50. The management of Duker Corporation is investigating purchasing equipment that would increase sales revenues by $130,000 per year and cash operating expenses by $39,000 per year. The equipment would cost $328,000 and have an 8 year life with no salvage value. The simple rate of return on the investment is closest to:
  51. A) 12.5%
  52. B) 27.7%
  53. C) 38.5%
  54. D) 15.2%

  51. An expansion at Fidell, Inc., would increase sales revenues by $75,000 per year and cash operating expenses by $38,000 per year. The initial investment would be for equipment that would cost $135,000 and have a 5 year life with no salvage value. The annual depreciation on the equipment would be $27,000. The simple rate of return on the investment is closest to:
  52. A) 20.0%
  53. B) 7.4%
  54. C) 27.4%
  55. D) 13.3%

  52. Messersmith Corporation is investigating automating a process by purchasing a machine for $688,000 that would have an 8 year useful life and no salvage value. By automating the process, the company would save $160,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $19,000. The annual depreciation on the new machine would be $86,000. The simple rate of return on the investment is closest to:
  53. A) 23.3%
  54. B) 11.1%
  55. C) 10.8%
  56. D) 12.5%

  53. The management of Stanforth Corporation is investigating automating a process. Old equipment, with a current salvage value of $24,000, would be replaced by a new machine. The new machine would be purchased for $516,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $173,000 per year in cash operating costs. The simple rate of return on the investment is closest to:
  54. A) 17.7%
  55. B) 16.9%
  56. C) 33.5%
  57. D) 16.7%

  Use the following to answer 54-56

  Overland Company has gathered the following data on a proposed investment project:

  The company uses straight-line depreciation on all equipment.

  54. The payback period for the investment is:
  55. A) 0.27 years
  56. B) 3.75 years
  57. C) 10.00 years
  58. D) 2.13 years

  55. The simple rate of return on the investment is:
  56. A) 26.67%
  57. B) 16.67%
  58. C) 36.67%
  59. D) 10.00%

  56. The net present value of this investment is:
  57. A) $40,000
  58. B) $3,625
  59. C) $57,831
  60. D) $95,800

  Use the following to answer 57-59

  Perky Food Corporation produces and sells coffee jelly. Perky currently produces the jelly using a manual operation but is considering the purchase of machinery to automate its operations. Information related to the two operations is as follows:

  Perky’s discount rate is 12%. Perky uses the straight-line method of depreciation.

  57. What is the net present value of automating operations using the incremental cost approach?
  58. A) $11,940
  59. B) $56,940
  60. C) $(104,106)
  61. D) $112,684

  58. What is the simple rate of return for automating operations?
  59. A) 3.8%
  60. B) 12.1%
  61. C) 14.5%
  62. D) 22.9%

  59. What will be the effect on the net present value of the decision to automate operations if 60,000 jars instead of 50,000 jars are expected to be sold each year? (Assume no change in cost structure or selling price.)
  60. A) no effect
  61. B) $52,030 decrease
  62. C) $63,179 increase
  63. D) $115,208 increase

  Use the following to answer 60-62

  Tam Company is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in cash operating costs. The equipment’s estimated useful life is 10 years, with no salvage value, and would be depreciated by the straight-line method. Tam’s required rate of return is 12%.

  60. The net present value of this investment is:
  61. A) $5,760
  62. B) $6,440
  63. C) $12,200
  64. D) $13,000

  Source: CPA, adapted

  61. The payback period of this investment is:
  62. A) 4 years
  63. B) 1 year
  64. C) 10 years
  65. D) 5 years

  62. The simple rate of return of this investment is:
  63. A) 8%
  64. B) 20%
  65. C) 12%
  66. D) 10%

  Use the following to answer 63-64

  Evans Company is considering rebuilding and selling used alternators for automobiles. The company estimates that the net cash flows (sales less cash operating expenses) arising from the rebuilding and sale of the used alternators would be as follows:

  In addition, Evans Company would need to purchase equipment costing $275,000. The equipment would have a 12 year life and a $25,000 salvage value. The company’s required rate of return is 10%.

  63. The payback period on this investment is:
  64. A) 3.00 years
  65. B) 2.75 years
  66. C) 1.50 years
  67. D) 4.00 years

  64. The net present value of the project is closest to:
  65. A) $364,090
  66. B) $372,065
  67. C) $339,090
  68. D) $389,090

  Use the following to answer 65-66

  Baldock Inc. is considering the acquisition of a new machine that costs $420,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:

  65. If the discount rate is 12%, the net present value of the investment is closest to:
  66. A) $330,000
  67. B) $539,365
  68. C) $119,365
  69. D) $420,000

  66. The payback period of this investment is closest to:
  67. A) 5.0 years
  68. B) 3.2 years
  69. C) 1.9 years
  70. D) 2.8 years

  Use the following to answer 67-68

  Delley Inc. is considering the acquisition of equipment that costs $340,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are:

  67. If the discount rate is 17%, the net present value of the investment is closest to:
  68. A) $45,811
  69. B) $385,811
  70. C) $301,000
  71. D) $117,341

  68. The payback period of this investment, rounded off to the nearest tenth of a year, is closest to:
  69. A) 3.9 years
  70. B) 3.6 years
  71. C) 3.1 years
  72. D) 5.0 years

  Use the following to answer 69-70

  Westland College has a telephone system that is in poor condition. The system either can be overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives:

  Westland College uses a 10% discount rate and the total cost approach to capital budgeting analysis. The working capital required under the new system would be released for use elsewhere at the conclusion of the project. Both alternatives are expected to have a useful life of eight years.
  69. The net present value of overhauling the present system is:

  1. A) $(321,084)
  2. B) $(532,516)
  3. C) $(560,536)
  4. D) $(592,516)

  70. The net present value of the new system alternative is:
  71. A) $(483,095)
  72. B) $(583,095)
  73. C) $(596,395)
  74. D) $(536,395)

  Use the following to answer 71-72

  Lambert Manufacturing has $100,000 to invest in either Project A or Project B. The following data are available on these projects:

  Both projects will have a useful life of 6 years. At the end of 6 years, the working capital investment will be released for use elsewhere. Lambert’s required rate of return is 14%. The company uses the total cost approach to evaluating alternatives.

  71. The net present value of Project A is:
  72. A) $51,000
  73. B) $60,120
  74. C) $55,560
  75. D) $94,450

  72. The net present value of Project B is:
  73. A) $90,355
  74. B) $76,115
  75. C) $36,115
  76. D) $54,355

  Use the following to answer 73-75

  Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The following information has been gathered relative to this decision:

  Carlson uses the total cost approach and a discount rate of 12%. Regardless of which option is chosen, rebuild or replace, at the end of five years Carlson Manufacturing plans to close its domestic manufacturing operations and to move these operations to foreign countries.

  73. If the new equipment is purchased, the present value of all cash flows that occur now is:
  74. A) $(48,000)
  75. B) $(39,000)
  76. C) $(41,000)
  77. D) $(37,000)

  74. If the new equipment is purchased, the present value of the annual cash operating costs associated with this alternative is:
  75. A) $(28,840)
  76. B) $(19,160)
  77. C) $(14,420)
  78. D) $(36,050)

  75. If the equipment is rebuilt, the present value of all cash flows that occur now is:
  76. A) $(55,000)
  77. B) $(25,000)
  78. C) $(16,000)
  79. D) $(23,000)

  Use the following to answer 76-79

  Cedar Hill Hospital needs to expand its facilities and desires to obtain a new building on a piece of property adjacent to its present location. Two options are available to Cedar Hill, as follows:

  Option 1: Buy the property, erect the building, and install the fixtures at a total cost of $600,000. This cost would be paid off in five installments: an immediate payment of $200,000, and a payment of $100,000 at the end of each of the next four years. The annual cash operating costs associated with the new facilities are estimated to be $12,000 per year. The new facilities would be occupied for thirteen years, and would have a total resale value of $300,000 at the end of the 13-year period.

  Option 2: A leasing company would buy the property and construct the new facilities for Cedar Hill which would then be leased back to Cedar Hill at an annual lease cost of $70,000. The lease period would run for 13 years, with each payment being due at the BEGINNING of the year. Additionally, the company would require an immediate $10,000 security deposit, which would be returned to Cedar Hill at the end of the 13-year period. Finally, Cedar Hill would have to pay the annual maintenance cost of the facilities, which is estimated to be $4,000 per year. There would be no resale value at the end of the 13-year period under this option.

  The hospital uses a discount rate of 14% and the total-cost approach to net present value analysis in evaluating its investment decisions.

  76. Under option 1, the present value of all cash outflows associated with buying the property, erecting the building, and installing the fixtures is closest to:
  77. A) $(200,000)
  78. B) $(491,400)
  79. C) $(600,000)
  80. D) $(387,200)

  77. Under option 1, the net present value of all cash flows is closest to:
  78. A) $(456,000)
  79. B) $(600,000)
  80. C) $(300,000)
  81. D) $(507,000)

  78. Under option 2, the present value of all the annual lease payments of $70,000 is closest to:
  79. A) $(466,200)
  80. B) $(408,900)
  81. C) $(483,700)
  82. D) $(910,000)

  79. Under option 2, the present value of all cash flows associated with maintenance costs is closest to:
  80. A) $(23,400)
  81. B) $(52,000)
  82. C) $(70,100)
  83. D) $(4,000)

  Use the following to answer 80-81

  Clairmont Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $37,000. The company requires a minimum pretax return of 12% on all investment projects.

  80. The present value of the annual cost savings of $37,000 is closest to:
  81. A) $133,385
  82. B) $235,070
  83. C) $185,000
  84. D) $20,979

  81. The net present value of the proposed project is closest to:
  82. A) -$6,409
  83. B) -$11,295
  84. C) $1,385
  85. D) -$16,615

  Reference: 12_12

  Use the following to answer 82-83

  The management of Mashiah Corporation is considering the purchase of a machine that would cost $290,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimum pretax return of 13% on all investment projects.

  82. The present value of the annual cost savings of $102,000 is closest to:
  83. A) $849,012
  84. B) $612,000
  85. C) $195,872
  86. D) $407,796

  83. The net present value of the proposed project is closest to:
  84. A) $154,663
  85. B) $322,000
  86. C) $117,796
  87. D) $245,246

  Use the following to answer 84-85

  Lebert, Inc., is considering the purchase of a machine that would cost $380,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $49,000. The machine would reduce labor and other costs by $96,000 per year. Additional working capital of $6,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 18% on all investment projects.

  84. The combined present value of the working capital needed at the beginning of the project and the working capital released at the end of the project is closest to:
  85. A) $16,872
  86. B) $0
  87. C) -$4,116
  88. D) -$13,111

  85. The net present value of the proposed project is closest to:
  86. A) $1,338
  87. B) -$8,849
  88. C) -$14,048
  89. D) -$2,778

  Use the following to answer 86-87

  Dube Corporation is considering the following three investment projects:

  86. The profitability index of investment project E is closest to:
  87. A) 0.13
  88. B) 1.13
  89. C) 0.87
  90. D) 0.12

  87. Rank the projects according to the profitability index, from most profitable to least profitable.
  88. A) F,E,D
  89. B) D,F,E
  90. C) F,D,E
  91. D) E,F,D

  Use the following to answer 88-89

  The management of Keno Corporation is considering three investment projects-B, C, and D. Project B would require an investment of $15,000, Project C of $50,000, and Project D of $89,000. The present value of the cash inflows would be $16,350 for Project B, $56,500 for Project C, and $96,120 for Project D.

  88. The profitability index of investment project C is closest to:
  89. A) 0.13
  90. B) 0.87
  91. C) 0.12
  92. D) 1.13

  89. Rank the projects according to the profitability index, from most profitable to least profitable.
  90. A) B,D,C
  91. B) C,B,D
  92. C) D,C,B
  93. D) D,B,C

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• Capital Budgeting Decisions: True/False Answers

  $2.00
  1. Both the net present value method and the internal rate of return method can be used as a screening tool in capital budgeting decisions.

  2. When considering a number of investment projects, the project that has the best payback period will also always have the highest net present value.

  3. When discounted cash flow methods of capital budgeting are used, the working capital required for a project is ordinarily counted as a cash outflow at the beginning of the project and as a cash inflow at the end of the project.

  4. Discounted cash flow techniques automatically provide for recovery of initial investment.

  5. When computing the project profitability index of an investment project, the investment required will include any investment made in working capital at the beginning of the project.

  6. If investment funds are limited, the net present value of one project should not be compared directly to the net present value of another project unless the initial investments in these projects are equal.

  7. In calculating payback where new equipment is replacing old equipment, any salvage value to be received on disposal of the old equipment should be deducted from the cost of the new equipment.

  8. In the payback method, depreciation is added back to net operating income when computing the net annual cash flow.

  9. The simple rate of return method is desirable because of its simplicity and the fact that it takes the time value of money into account.

  10. The present value of a cash flow will never be greater than the future dollar amount of the cash flow.
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• Medfin Accounting Company (MAC) Assignment

  $2.00

  Medfin Accounting Company (MAC) specializes in providing accounting and tax services for medical establishment and professionals. Presently, the company’s production method is highly labor-intensive because many of the book keeping tasks are done manually. MAC employs 50 workers (L) paying them each, on average, $50,000 per year. MAC also has 40 computers (K). The company has leased these computers along with their accompanying software packages at $5,000 per year each. Presently the firm provides accounting and tax services to 150 clients.

  a. Write the equation for the company’s isocost.

  b. At this given mix of inputs ( K = 40, L= 50) the firm’s marginal rate of technical substitution (MPL/MPK) is -6. Is this mix of capital and labor that MAC is using efficient (optimal)? Explain as specifically as you can.

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