CHAPTER 12

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York University *

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MGMT 1000

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Industrial Engineering

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Feb 20, 2024

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docx

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4

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CHAPTER 12 What are the two principal types of investment projects? - Independent and dependent projects. For a typical capital investment project, the bulk of the investment-related cash outflow occurs - During the initiation stage of the project (i.e., at time period 0) Accounting makes all the following contributions to the capital budgeting process except: - The theoretical development of appropriate decision models. In making sound capital budgeting decisions, the principal focus is on - After-tax cash flows and the timing of these cash flows. The process of identifying, evaluating, selecting, and controlling capital investments is referred to as: - Capital budgeting. Which of the following can a cash flow analysis of the final disposal of a capital asset (for example, machinery used in the operation of a business) not produce? - An operating gain or loss. Build Corporation wants to purchase a new machine for $298,000. Management predicts that the machine can produce sales of $205,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $68,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 14% on all investments. What is the amount of net income (after taxes) in Year 2 of the investment? Round to the nearest whole number. - Pre-tax income = Sales − depreciation expense − cash expenses = $205,000 − $59,600 − $68,000 = $77,400 - After-tax income (rounded to the nearest whole number) = Pre-tax income × (1 − t ) = $77,400 × (1 − 0.40) = $46,440 Hammer Corporation wants to purchase a new machine for $286,000. Management predicts that the machine will produce sales of $206,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $81,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t , is 30%.
What is the expected net income (after tax) in Year 3 if the proposed investment is undertaken? Round answer to nearest whole dollar. - Pre-tax income = Sales − depreciation expense − cash expenses = $206,000 − $47,200 − $81,000 = $77,800 - After-tax income (rounded to nearest whole dollar) = Pre-tax income × (1 − t) = $77,800 × (1 − 0.30) = $54,460 Antique Corporation is contemplating the replacement of an existing asset used in the operation of its business. The original cost of this asset was $32,000; since date of acquisition, the company has taken a total of $24,000 of depreciation expense on this asset. The current disposal (market) value of this asset is estimated as $12,000. Antique is subject to a combined income tax rate, t , of 28%. What is the projected after-tax cash flow associated with the sale of the existing asset? Cash from sale (given) $ 12,000Less: Tax effect on disposal:  Gain = $12,000 − $8,000 book value =$ 4,000 Tax rate,  t × 28% Tax on gain $ 1,120After-tax cash inflow (cash received less tax on realized gain) $ 10,880 CHAPTER 13 Which of the following is not one of the five steps in target costing that manages the trade-offs between functionality and cost? - Determine what new products should be made. Many firms are finding it is difficult to compete successfully on cost leadership or differentiation alone, and they must, in fact, compete on both: - Price and functionality. An important first step in value engineering that identifies critical consumer preferences that will define the product's desired functionality is known as: - Consumer analysis. An engineering method that integrates product design with manufacturing and marketing throughout the product’s life cycle is called: - Concurrent engineering Which of the following is a method of reducing cost by identifying parts in different products that are common and interchangeable? - Group technology. Throughput margin is defined as sales less: - Direct material costs.
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