DEF Corporation has projected that their performance for the next five years will result to thefollowing:Cash OperatingExpensesP30,000,00033,000,00036,300,00039,930,00043,920,000YearRevenueP 50,000,00055,000,00060,500,00066,550,00073,210,000134The corporation owns a property originally acquired at P50 million with useful life of 10 years.The terminal value was assumed based on the growth rate of the cash flows. Annual capitalinvestment requirement is at P2 million. Income tax rate is at 30%. The required rate of returnfor this business is 14%.Compute the following:1. Terminal value2. Net cash flows to the firm3. Discounted net cash flows to the firm

Useful life is 10 years CAPEX is P2million Orginal purchase price is P50million Tax rate is 30%…

Answered: DEF Corporation has projected that…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 11MCQ

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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.
ABC Corporation acquired an asset for a purchase price of P1,200,000. This is expected to appreciate every yearby 5%. The entity will be incurring P50,000 cost to dispose the asset by the end of its 20-year investment period. If the cost to finance this investment is 4%, what is the intrinsic value of the asset after accounting for the cost of illiquidity? a. P1,583,626.69 b. P1,430,297.18 c. P8838,969.98 d. P972,129.05 e. None among the other choices
Vista Limited intends purchasing a new machine and has a choice between the following two machines:Equipment AEquipment BInitial costR220 000R240 000Expected useful life5 years5 yearsScrap valueNilNilExpected net cash inflows:RREnd of:Year 155 00070 000Year 260 00070 000Year 362 00070 000Year 460 00070 000Year 570 00070 000The company estimates that its cost of capital is 12%. Calculate the Internal Rate of Return of Equipment B.
Vista Limited intends purchasing a new machine and has a choice between the following two machines:Equipment AEquipment BInitial costR220 000R240 000Expected useful life5 years5 yearsScrap valueNilNilExpected net cash inflows:RREnd of:Year 155 00070 000Year 260 00070 000Year 362 00070 000Year 460 00070 000Year 570 00070 000The company estimates that its cost of capital is 12%. Required:2.1 Calculate the Payback Period of both equipment. (Answers must be expressed in years, months and days). 2.2 Calculate the Accounting Rate of Return (on initial investment) for both equipment A and B. (Answers must be expressed to 2 decimal places). 2.3 Calculate the Net Present Value of each equipment. (Round off amounts to the nearest Rand.) 2.4 Calculate the Internal Rate of Return of Equipment B.
The NUBD Co. acquired a new machine for P160,000 which will be depreciated on a straight-line basis over ten year period. A full year’s depreciation was taken in the year of acquisition. The accounting rate of return is expected to be 15% on the initial increase in required investment. If we assume a uniform cash inflow, the annual cash flow from operations, net of income taxes, will be
In January 2022, Utah Corporation entered into a contract to acquire a new machine for its factory. The machine, which had a cash price of P2,000,000, was paid for as follows: Down payment 300,0005,000 ordinary shares of Utah with an agreed-upon value of P370 per share 1,850,0002,150,000Prior to the machine’s use, installation costs of P70,000 were incurred. The machine has an estimated useful life of 10 years and an estimated salvage value of P100,000. The straight line method of depreciation is used. The depreciation to be recognized in 2022 is
The Hills Company, a calendar year company, purchased a new machine for P280,000 on January 1. Depreciation for tax purposes will be P35,000 annually for eight years. The accounting (book value) rate of return (ARR) is expected to be 15% on the initial increase in required investment. On the assumption of a uniform cash inflow, this investment is expected to provide annual cash flow from operations, net of income taxes, of Group of answer choices P40,250 P77,000 P35,000 P42,000
Meryll Company is negotiating to acquire the net assets LeMans Company. Under the plan, Meryll is willing to pay for goodwill computed by capitalizing at 25% LeMans’ average earnings in excess of the 10% normal return based on appraised value of net assets. This is the same level of income experienced by companies similar to LeMans line of business. LeMans' income for the past three years averaged P3,000,000. LeMans’ assets and liabilities are Book Value Appraised ValueAssets excluding goodwill P30,000,000 P39,000,000Liabilities 10,500,000 10,500,000
4. Robert owns of RPM which involve in manufacturing business The cash flow profile of RPM Enterprise indicates that it made a capital investment of BD90,000 that generates an annual revenue of BD25,000 and an operating cost of BD3,500 yearly. Also, the value of its properties at the end of five (5) years is worth BD20,000. If MARR is 15% per annum compounded annually Show computation of Depreciation- any method will do such as SL, SF, DB, or Service Output if applicable
ABC Ghana Ltd is considering investing in the following projects which are considered mutually exclusive Project1 Project2 Annual cash inflows 1,000,000 2,000,000 Cost of Machine 2,500,000 6,000,000 Scrap value of Machine 250,000 1,000,000 Expected Time 5 years ABC Ghana Ltd uses the straight-line method of depreciation. However, tax-allowable depreciation is 30% on straight line basis. The cost of capital for the company is 20% per annum. Calculate the Accounting Rate of Return for each project, Calculate the Net Present Value (NPV) for each project. And lastly Compute the Payback period for each project?
On January 1, 2022 the Aquila Co. acquired 100% of the Taurus Co. when the fair value of Taurus net assets was P4,000,000 and their carrying amount was P3,500,000. The consideration transferred consisted of P4,400,000 in cash transferred at the acquisition date, plus another P200,000 in cash to be transferred 10 months after (November 1, 2022) the acquisition date if a specified profit target was met by Taurus.At the acquisition date, there was only a low probability, around 40% of the profit target is being met.On November 1, 2022, additional P200,000 was paid by Aquila to Taurus after the latter met the specified profit target.How much is the goodwill to be reported on December 31, 2022? a. P480,000 b. P600,000 c. P980,000 d. P400,000
At December 31, 2022, Ayayai Corporation reported the following plant assets. Land $ 3,003,000 Buildings $26,510,000 Less: Accumulated depreciation—buildings 11,936,925 14,573,075 Equipment 40,040,000 Less: Accumulated depreciation—equipment 5,005,000 35,035,000 Total plant assets $52,611,075 During 2023, the following selected cash transactions occurred. Apr. 1 Purchased land for $2,202,200. May 1 Sold equipment that cost $600,600 when purchased on January 1, 2016. The equipment was sold for $170,170. June 1 Sold land for $1,601,600. The land cost $1,001,000. July 1 Purchased equipment for $1,101,100. Dec. 31 Retired equipment that cost $700,700 when purchased on December 31, 2013. No salvage value was received. Journalize the transactions. Ayayai uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 40-year useful life and no salvage…

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