8s.7 A regional airport is considering installing a new baggage handling system. Two different vendors submitted bids on the system. The airport is to replace its current system. The cash flows that describe each baggage handling system with respect to the current system are given below. Years (n) Vendor A Vendor B Vendor B--Vendor A -$500,000 - $600,000 - $100,000 1–15 $48,170 $65,880 $17,710 IRR 5% 7% 15.73% PI (4%) 1.07 1.22 1.97 Which of the following statements is correct? a. Vendor B is preferred as its PI is higher than that of Vendor A. b. Vendor B is preferred as long as the airport's interest rate is more than 5%. c. Vendor B is preferred as long as the airport's interest rate is less than 7%. d. Vendor A is preferred if the airport's interest rate is more than 15.73%.

8s.7 A regional airport is considering installing a new baggage handling system. Two different vendors submitted bids on the system. The airport is to replace its current system. The cash flows that describe each baggage handling system with respect to the current system are given below. Years (n) Vendor A Vendor B Vendor B--Vendor A -$500,000 - $600,000 - $100,000 1–15 $48,170 $65,880 $17,710 IRR 5% 7% 15.73% PI (4%) 1.07 1.22 1.97 Which of the following statements is correct? a. Vendor B is preferred as its PI is higher than that of Vendor A. b. Vendor B is preferred as long as the airport's interest rate is more than 5%. c. Vendor B is preferred as long as the airport's interest rate is less than 7%. d. Vendor A is preferred if the airport's interest rate is more than 15.73%.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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N3. Account A granary has two options for a conveyor used in the manufacture of grain for transporting, filling, or emptying. One conveyor can be purchased and installed for $75,000 with $3,500 salvage value after 16 years. The other can be purchased and installed for $105,000 with $5,000 salvage value after 16 years. Operation and maintenance for each is expected to be $17,000 and $15,500 per year, respectively. The granary uses MACRS-GDS depreciation, has a marginal tax rate of 25%, and has a MARR of 9% after taxes. What must the cost of the second (more expensive) conveyor be for there to be no economic advantage between the two?
3. An Industrial plant bought a generator set for P90,000. Other expenses including installation amounted to P10,000. The generator is to have 17 years with a salvage value at the end of life of P5,000. Determine the book value at the end of 12 years by the following method;Declining balance method:P12,068P14,393P10.118P8,483Sinking fund method at 12% P59.860P53,100P45,529P65.896 SHOW YOUR SOLUTIONS PLEASE
6. STL service and installation works purchased a diesel generator from the ABB Electric Company valued at P2, 500. 000.00 on an easy payment plan, as follows: 20% cash upon delivery of the unit and the balance to be paid in 24 monthly installments with 12 % nominal interest on the unpaid balance. a. How much would the STL pay each month to the ABB Electric Co.? b. If instead of the above terms, the STL decided to start a sinking fund to enable it to purchase the same motor after 2 years on cash basis at the same value less 10% discount for cash purchase, how much would the monthly deposit in the fund be, if the money will earn interest at 6%. Assume interest rates are compounded monthly.
3. Kiwanda limited is considering the purchase of a new machine. Two alternatives machines, A and B, which will cost shs 6m and 7m respectively, are available in the market at a cost of 12%. The cash flows after taxation of each machine are as follows;Year Cash flowMachine A Machine Bshs shs1. 600,000 1,800,0002. 1,800,000 2,400,0003. 2,000,000 3,000,0004. 3,000,000 1,800,0005. 2,400,000 1,600,000 Required:a. Compute the net present value of each machine. b. Assume that each machine represent a project. Compute the Internal rate of return the company expects to earn from each of the two projects. c. Comments on the use of the results obtained in (a) and (b) above in selecting between the two projects.
This problem has subparts that still need to be answered Assume Avaya contracted to provide a customer with Internet infrastructure for $2,350,000. The project began in 2024 and was completed in 2025. Data relating to the contract are summarized below: 2024 2025 Costs incurred during the year $ 328,000 $ 1,830,000 Estimated costs to complete as of 12/31 1,312,000 0 Billings during the year 436,000 1,690,000 Cash collections during the year 341,000 1,785,000 Required: Compute the amount of revenue and gross profit or loss to be recognized in 2024 and 2025, assuming Avaya recognizes revenue over time according to percentage of completion. Compute the amount of revenue and gross profit or loss to be recognized in 2024 and 2025, assuming this project does not qualify for revenue recognition over time. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2024, assuming Avaya recognizes revenue over time…
For each of the following items, enter the correct letter to show whether the expenditure should becapitalized (C) or expensed (E).Transactions1. Purchased a machine, $70,000; gave long-term note.2. Paid $600 for ordinary repairs.3. Purchased a patent, $45,300 cash.4. Paid cash, $200,000, for addition to old building.5. Paid $20,000 for monthly salaries.6. Paid $250 for routine maintenance.7. Paid $16,000 for extraordinary repairs.
2. The company is setting aside funds to acquire a property for its new warehouse. The company needs P74,735 to make the down payment. The company deposits P5,000/month in the fund account which pays 1% per month. As the financial manager you have been tasked to determine how long it will take to accumulate enough funds to acquire the property?
Problem 4. On January 1, 20x1, ABC CO received land with a fair of ₱200,000 from the government conditioned on the construction of a building on the lot. Entity A started the construction immediately and it was completed on December 31, 20x1 for a total cost of ₱1,000,000. The building has an estimated useful life of 10 years and zero residual value. How much is the income from government grant in 20x1 and 20x2, respectively? How much is the carrying amount of the building on December 31, 20x2 under the gross and net presentations? How much is the depreciation expense recognized in 20x3 under the gross and net presentations?
2. FiTch, Inc., has purchased a new server and must decide what to do with the old one. The cost of the old server was originally P60,000 and has been depreciated P45,000. The company has received two offers. One offer was to lease the equipment for P7,000 for the next five years, but the company will be required to provide maintenance and insurance totaling P3,000 per year. The other offer was made to purchase the equipment outright for P18,500 less a 5% sales commission. Which offer should FiTCh, Inc., accept? Prepare a differential analysis report to support your answer.
Cranston LTD. prepares its financial statements according to International Financial Reporting Standards. InOctober 2018, the company received a $2 million government grant. The grant represents 20% of the total cost ofequipment that will be used to improve the roads in the local area. Cranston recorded the grant and the purchaseof the equipment as follows:Cash ................................. 2,000,000Revenue....................... 2,000,000Equipment....................... 10,000,000Cash ............................. 10,000,000Required:1. Explain the alternative accounting treatments available to Cranston for accounting for this government grant.2. Prepare any necessary correcting entries under each of the alternatives described in requirement 1.
6. ABC Company had the following outstanding loans during 20X1 and 20X2.10% Specific construction loans - 3, 000, 00012% General Loans - 25, 000, 000The company began the self-construction of a new building on January 1, 20X1 and the building was completed on June 30, 20X2, the following expenditures were made in 20X1 and 20X2:January 1, 20X1 - 4, 000, 000April 1, 20X1 - 5, 000, 000December 1, 20X1 - 3, 000, 000March 1, 20X2 - 6, 000, 000What is the cost of the new building on June 30, 20X2?
9. ABC Company purchased a machine on December 1, 20X1 at an invoice price of 4, 500, 000 with terms 2/10, n/30. On December 10, 20X0, ABC paid the required amount for the machine. On December 1, 20X0, ABC paid 80, 000 for delivery of the machine and on December 31, 20X0, it paid 310, 000 for installation and testing of the machine. The machine was ready for use on January 1, 20X1. It was estimated that the machine would have a useful life of 5 years and a residual value of 800, 000. Engineering estimates indicated that the useful life in productive units was 200, 000. Units actually produced during the first 2 years were 30, 000 in 20X1 and 48, 000 in 20X2. ABC Company decided to use the output method of depreciation. What is the depreciation of the machine for 20X2?

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