7-20different methods of evaluating investment proposals:The Electronic Industries Joint Stock Company has an opportunity to purchase the assets of the Modern Trade Company (under liquidation) for an amount of (10) million $ Dollars. In the past year, the company achieved sales revenue of (18) million $ Dollars, compared to costs of (16) million $ Dollars . The total depreciations of fixed assets amounted to 800,000 $ Dollars , and the Electronic Industries Company expects to obtain the same level of activity for a period of (5) years, as the assets had no value. Required: Evaluate the new investment using: 4. The rate of accounting return on investment.

7-20different methods of evaluating investment proposals:The Electronic Industries Joint Stock Company has an opportunity to purchase the assets of the Modern Trade Company (under liquidation) for an amount of (10) million $ Dollars. In the past year, the company achieved sales revenue of (18) million $ Dollars, compared to costs of (16) million $ Dollars . The total depreciations of fixed assets amounted to 800,000 $ Dollars , and the Electronic Industries Company expects to obtain the same level of activity for a period of (5) years, as the assets had no value. Required: Evaluate the new investment using: 4. The rate of accounting return on investment.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 18PROB

See similar textbooks

Similar questions

2. Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $840,000. The estimated market values of the purchased assets are building, $487,500; land, $302,250; land improvements, $58,500; and four vehicles, $126,750. 4. Compared to straight-line depreciation, does accelerated depreciation result in payment of less total taxes over the asset’s life?
Upper Division of Lower Company acquired an asset with a cost of $560,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows. Year Cash Flow 1 $ 205,000 2 270,000 3 290,000 4 315,000 The cost of the asset is expected to increase at a rate of 10 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes. Required: a. What is the ROI for each year of the asset's life, using a historical cost approach? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).) b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year? (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).)
Upper Division of Lower Company acquired an asset with a cost of $580,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows. Year Cash Flow 1 $ 210,000 2 250,000 3 285,000 4 320,000 The cost of the asset is expected to increase at a rate of 20 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes. Required: a. What is the ROI for each year of the asset's life, using a historical cost approach? b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year?
Question. On June 28 Lexicon Corporation acquired 100% of the common stock of Gulf & Eastern. The purchase price allocation included the following items: $4 million, patent; $3 million, developed technology; $2 million, in-process research and development; $5 million, goodwill. Lexiconâ€™s policy is to amortize intangible assets using the straight-line method, no residual value, and a five-year useful life. What is the total amount of expenses (ignoring taxes) that would appear in Lexiconâ€™s income statement for the year ended December 31 related to these items?
10. PETRON Corporation sold a fixed asset for P100,000, which was also its book value. This isA. an investment cash flow and a source of funds.B. an operating cash flow and a source of funds.C. an operating cash flow and a use of funds.D. an investment cash flow and a use of funds. 11. SMART Corporation raises P500,000 in long-term debt to acquire additional plant capacity. This is consideredA. an investment cash flow.B. a financing cash flow.C. a financing cash flow and investment cash flow, respectively.D. a financing cash flow and operating cash flow, respectively. 12. All of the following are financing cash flows EXCEPTA. sale of stock.B. payment of stock dividends.C. increasing debt.D. repurchasing stock. 13. All of the following are operating cash flows EXCEPTA. net profit/earnings after tax.B. increase or decrease in current liabilities.C. increase or decrease in fixed assets.D. depreciation expense.
14. Bronze Company operates a production line which is treated as a cash generating unit. At year end, the carrying amounts of the noncurrent assets of the cash generating unit are: Goodwill 1,100,000 Plant and machinery 2,200,000 At year end, the recoverable amount of the production line is estimated at 2,700,000. What are the revised carrying amounts of the goodwill and plant and machinery, respectively?
Topic: Intangible Assets (Goodwill) Guinevere Company is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of entity at current year end was P10,000,000. Excess earnings are purchased for 5 years P8,000,000 Excess earnings are capitalized at 25% P6,400,000 Annual average earnings are purchased for 3 years P10,800,000 What is the amount of goodwill if: 1. Annual average earnings are capitalized at 25%? A. 1,600,000 B. 3,600,000 C. 4,400,000 D. 2,000,000 2. Excess earnings are discounted at 12% for 5 years? (the PV of an ordinary annuity of 1 for 5 years at 12% is 3.60) A. 12,960,000 B. 10,800,000 C. 5,760,000 D. 7,200,000
5. On December 31, 2024, the end of the fiscal year, California Microtech Corporation completed the sale of its semiconductor business for $15 million. The semiconductor business segment qualifies as a component of the entity according to GAAP. Consider the following additional information. The book value of the assets of the segment at the time of the sale was $12 million. The loss from operations of the segment during 2024 was $4.5 million. Pretax income from other continuing operations for the year totaled $6.6 million. The income tax rate is 25%. Prepare the lower portion of the 2024 income statement beginning with income from continuing operations before income taxes. Note: Loss amounts should be indicated with a minus sign. Enter your answers in whole dollars and not in millions. For example, $4,000,000 rather than $4.
Topic: Intangible Assets (Goodwill) Guinevere Company is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of entity at current year end was P10,000,000. What is the amount of goodwill if: 1. Excess earnings are purchased for 5 years? A. 8,000,000 B. 4,000,000 C. 5,000,000 D. 4,500,000 2. Excess earnings are capitalized at 25%? A. 7,200,000 B. 6,400,000 C. 8,000,000 D. 3,600,000 3. Annual average earnings are purchased for 3 years? A. 10,800,000 B. 18,000,000 C. 4,800,000 D. 5,400,000 4. Annual average earnings are capitalized at 25%? A. 1,600,000 B. 3,600,000 C. 4,400,000 D. 2,000,000 5. Excess earnings are discounted at 12% for 5 years? (the PV of an ordinary annuity of 1 for 5 years at 12% is 3.60) A. 12,960,000 B. 10,800,000 C. 5,760,000 D. 7,200,000
5. In January 20X1, ABC Mining Corporation purchased a mineral mine for P7,200,000 with removable ore estimated by geological surveys at 4,320,000 tons. The property has an estimated value of P720,000 after the ore has been extracted. ABC incurred P2,160,000 of development costs preparing the property for the extraction of ore. During 20X1, 540,000 tons were removed and 480,000 tons were sold. For the year ended December 31, 20X1, ABC should include what amount of depletion in its cost of goods sold?
14. In January 20X1, ABC Mining Corporation purchased a mineral mine for P7,200,000 with removable ore estimated by geological surveys at 4,320,000 tons. The property has an estimated value of P720,000 after the ore has been extracted. ABC incurred P2,160,000 of development costs preparing the property for the extraction of ore. During 20X1, 540,000 tons were removed and 480,000 tons were sold. For the year ended December 31, 20X1, ABC should include what amount of depletion chargeable to ore inventory?
17. The entity incurred the following in exploring a natural resources on January 1,2021Acquisition cost of the land P10,000,000Development cost 5,000,000Exploration cost 6,000,000Purchase of equipment 3,000,000The entity expects to mine a total of 5,000,000 tons of natural gas, it is also estimated that 1,000,000 of natural gas will be extracted every year. The useful life of the equipment is 6 years, the equipment is used over a several project not just in that specific natural resources. On 2021 the entity extracted 1,500,000 tons of natural gas. How much is the depletion for the year 2021?