17. Capital Company has decided todiscontinue a product produced on amachine purchased 4 years ago at acost of P70,000. The machine has acurrent book value of P30,000. Due totechnologically improved machinerynow available in the marketplace theexisting machine has no currentsalvage value. The company isreviewing the various aspects involvedin the production of a new product. Theengineering staff advised that theexisting machine can be used toproduce the new product. Other costsinvolved in the production of the newproduct will be materials of P20,000and labor priced at P5,000. Ignoringincome taxes, the costs relevant to thedecision to produce or not to producethe new product would be *Ph 25,000Ph 55,000Ph 30,000O Ph 95,000

Cost relevant to the decision to produce the new product includes all the expenditures that are…

Answered: 17. Capital Company has decided to…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 4PROB

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Differential analysis report for machine replacement proposal Catalina Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Annual nonmanufacturing operating expenses and revenue are not expected to be affected by the purchase of the new machine. Instructions List other factors that should be considered before a final decision is reached.
14.ABC Company is committed to a plan to sell a building and has started looking for a buyer for that building. The company will continue to use the building until another building is completed to house the office staff located in the building. There is no intention to relocate the office staff until the new building is completed. As of Dec 31, 2021, the building has a carrying amount of P250,000 and fair value less costs to sell amounted to P235,000. How much will be presented as Assets-Held-for-Sale in the statement of financial position at Dec 31, 2021? 15.During 2021, Entity F incurred P4,000,000 in exploration costs for each of 15 oil wells drilled in 2021. Of the 15 wells drilled, 10 were dry holes. The entity uses the successful efforts method of accounting. Assuming that the entity depletes 30% of the oil discovered in 2021, what amount of these exploration costs would remain in its Dec 31, 2021 statement of financial position?
Copycat manufacturing company is subject to a 30% income tax rate, had the following operating date: selling price per unit, P60; variable cost per unit, P22 and fixed costs of P504,000. Management plans to improve the quality of its product by replacing a component that costs P5.50 and acquiring a P180,000 packing machine. The company will depreciate the machine over a 10 year life with no estimated salvage value using the straight line method of depreciation. If the company wants to earn an after tax income of P201,600, how many units must it sell under the new proposal?
A company purchased a machine for RO 10,000. It has a book value of RO3,000 but has become obsolete and cannot be sold in its present condition. However, if the firm is willing to modify the machine at a cost of RO2,000, it can be sold for RO 6,000. Advise.
CSY Bhd is a producer of dairy products. The company management decides to replace its equipment. The current equipment was purchased 18 years ago at a cost of RM 2 million, and it was amortized over a 20-year period using the straight-line method, assuming no expected residual value. Management believes that, currently, the equipment could be sold for RM 150,000. The new equipment would cost RM 2.85 million and have an expected residual value of RM 525,000 at the end of its estimated life of 10 years. With the new equipment, the current operating costs of RM 1.5 million would decrease by 30% in year 1, remain at that level for year 2 and 3, decrease by another 10% in year 4, and remain at the level for the remaining life of the asset. With the new equipment, the company would have to hire another operator at an annual cost of RM 30,000. The company’s cost of capital is 12%. (ii) Calculate the total new savings in operating costs over the expected life of the new equipment.
Ltd. is currently faced with a critical decision regarding its production equipment. Cari Heat (CH) is evaluating two options for its production equipment: upgrading or replacing. The company manufactures and sells 7,500 heaters every year, each priced at $920. The current production equipment, which was acquired at a cost of $2,150,000, has been in use for just two years and is subject to straight-line depreciation over a five-year useful life. Furthermore, it possesses no terminal disposal value, but it can be currently sold for $650,000. The following table presents data for the two alternatives: : Upgrade One-time equipment costs= $3,500,000 Variable manufacturing cost per Heater =$180 Remaining useful life of equipment (years) =3 Terminal disposal value of equipment =0 Choice: Replace One-time equipment costs= $5,200,000 Variable manufacturing cost per Heater = $90 Remaining useful life of equipment (years) = 3 Terminal disposal value of equipment = 0 Required…
1. Reveille, Inc., purchased Machine #204 on April 2021, and placed the machine into production on April 3, 2021. The following information is relevant to Machine #204:Price P60,000Freight-in costs 2,500Preparation and installation costs 3,900Labor costs during regular production operation 10,200Credit terms 2/10, n/30Total productive output 138,500 unitsThe company expects that the machine could be used for 10 years, after which the salvage value would be zero. However, Reveille, Inc., intends to use the machine only eight years, after which it expects to be able to sell it for P9,800. The invoice for Machine #204 was paid April 10, 2021. The number of units produced in 2021 and 2022 were 23,200 and 29,000, respectively. Reveille computes depreciation to the nearest whole month.Required Compute the depreciation for the years indicated, using the following methods (round your answer to the nearest peso): 1. 2021: Units of productions2. 2022: Sum-of-the-years’- digits method 2. The…
Riles Truckers, Inc. acquired a heavy road transporter on January 1, 2012 at a cost of P10 million. The estimated useful life is 10 years. On January 1, 2018, the power train requires replacement, as further maintenance is uneconomical due to the off-road time required. The remainder of the vehicle is perfectly roadworthy and is expected to last for the next four years. The cost of the new power train is P4.5 million.20. Assuming that the original cost of the power train is P3 million, the total depreciation expense in 2018 is_________.21.Assuming that the original cost of the power train is not separately identifiable and the appropriate discount rate is 5% (the present value of 1 at 5% for 6 years is 0.7462), the total depreciation expense in 2018 is ?
Riles Truckers, Inc. acquired a heavy road transporter on January 1, 2014 at a cost of P10 million. The estimated useful life is 10 years. On January 1, 2020, the power train requires replacement, as further maintenance is uneconomical due to the off-road time required. The remainder of the vehicle is perfectly roadworthy and is expected to last for the next four years. The cost of the new power train is P4.5 million. 1. Assuming that the original cost of the power train is P3 million, the total depreciation expense in 2020 is 2. Assuming that the original cost of the power train is not separately identifiable and the appropriate discount rate is 5% (the present value of 1 at 5% for 6 years is 0.7462), the total depreciation expense in 2020 is ?
The following costs are incurred by Everlasting Corporation in 2022: a. Cost of activities aiming new knowledge P150,000 b. Cost of developing and producing prototype model 30,000 c. Cost of seminars to introduce the newly develop product 120,000 d. Advertisement cost to introduce the newly develop product 60,000 e. Cost incurred for search of alternatives 35,000 f. Cost of final selection of possible alternatives 50,000 g. Cost of machine acquired to be used only in an R&D project 300,000 h. Cost of engineering follow through in an early phase of commercial production 50,000 i. Adaptation of an existing capability to particular customers need 36,000 j. Salaries of employees involved in R&D 480,000 k. Radical modification to the formulation of a chemical product 40,000 l. Laboratory…
The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that wouldreduce operating costs in its warehouse by $4,000 per year. At the end of the machine’s 10-year useful life, it will have no scrap value. The company’srequired rate of return is 12%.Required:(Ignore income taxes.)1. Determine the net present value of the investment in the machine.2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
E10-3 Acquisition Costs Voiture Company manufactures compact, energy-efficient cars. On April 1, it purchased a machine for its assembly line at a contract price of $400,000 with terms of 2/10, n/30. Voiture paid the contract price on April 8 and also incurred installation and transportation costs of $5,000, sales tax of $32,000, and testing costs of $2,000. During testing, the machine was accidentally damaged, so the company had to pay $1,000 to repair it. Required: Determine the cost of the machine. For each item excluded from property, plant and equipment, how would the item be classified in the financial statements?

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