Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost$217,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $43,300 per year. Nowthat the investment has been in operation for 1 year, revised figures indicate that it actually cost $226,000, will have a total useful lifeof 11 years (including the year just completed), and will produce net annual cash flows of $37,100 per year. Click here to view PV table.Evaluate the success of the project. Assume a discount rate of 12%. (If the net present value is negative, use either a negative sign precedingthe number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125. For calculation purposes, use 5 decimalplaces as displayed in the factor table provided.)Original estimate net present valueRevised estimate net present value $The project$a success.

Net Present Value :— It Means the summation of all present Value of cash flows. For decision…

Evaluate the success of the project. Assume a discount rate of 12%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Original estimate net present value Revised estimate net present value The project a success. $ $

Evaluate the success of the project. Assume a discount rate of 12%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to O decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Original estimate net present value Revised estimate net present value The project a success. $ $

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 51P: Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new...

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Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?
A machine costing 350,000 has a salvage value of 15,000 and an estimated life of three years. Prepare depreciation schedules reporting the depreciation expense, accumulated depreciation, and book value of the machine for each year under the double-declining-balance and sum-of-the-years-digits methods. For the double-declining-balance method, round the depreciation rate to two decimal places.
Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.
Cullumber Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $223,000, would have a useful life of 9 years and zero salvage value, and would result in net annual cash flows of $44,600 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $226,000, will have a total useful life of 11 years (including the year just completed), and will produce net annual cash flows of $37,100 per year. Click here to view PV table.Evaluate the success of the project. Assume a discount rate of 12%. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round present value answers to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Original estimate net present value $enter a dollar amount Revised estimate net present value…
Sunland Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $221,000, would have a useful life of 9 years and zero salvage value, and would result in net annual cash flows of $44,200 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $229,000, will have a total useful life of 11 years (including the year just completed), and will produce net annual cash flows of $37,800 per year. Evaluate the success of the project. Assume a discount rate of 12%. What is the original estimate net present value? What is the revised estimate net present value. Is the project a success?
Whispering Winds Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $575,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $107,000 per year. Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $625,000, will have a useful life of 11 years, and will produce net annual cash flows of $94,000 per year. Evaluate the success of the project. The company’s discount rate is 10%. (Use the above table.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.) Original estimate Revised estimate Net present value $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places The original project was select an option .
Shado, Incorporated, is considering an investment of $442,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $281,300 and $88,400, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $62,000 in nominal terms at that time. The one-time net working capital investment of $18,500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 22 percent. What is the project’s total nominal cash flow from assets for each year? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Year 0$-460,500selected answer correctYear 1$167,182selected…
Shado, Incorporated, is considering an investment of $451,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $289,400 and $90,200, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 5 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $71,000 in nominal terms at that time. The one-time net working capital investment of $23,000 is required immediately and will be recovered at the end of the project. The corporate tax rate is 21 percent. What is the project’s total nominal cash flow from assets for each year?
Perkins, Inc., is considering an investment of $383,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $263,000 and $88,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $63,000 in nominal terms at that time. The one-time net working capital investment of $19,000 is required immediately and will be recovered at the end of the project. The tax rate is 23 percent. What is the project’s total nominal cash flow from assets for each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.) Cash Flow Year 0 $ -402,000 Year 1 Year 2 Year 3…
Perkins, Inc., is considering an investment of $379,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $259,000 and $84,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $59,000 in nominal terms at that time. The one-time net working capital investment of $17,000 is required immediately and will be recovered at the end of the project. The tax rate is 24 percent. What is the project’s total nominal cash flow from assets for each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.)
The Reiph Transportation Company is planning to buy a new fleet of trucks requiring an initial investment of $1,000,000, and $2,500,000 annually to maintain and operate. The expected life of the new fleet is 10 years. The revenue is estimated to be $5,000,000 per year and the salvage value is expected to be $250,000. The MARR is 18%. Conduct a sensitivity analysis based on the given information. a. Calculate the PW of the Base case based on above given data. (Do not use AW or FW) b. Calculate the PW for the range of -10% to +15% for initial cost. (Do not use AW or FW)
A lathe used for the purpose of cutting molded plastics was acquired 10 years ago for a totalexpenditure of RM7,500,000. At the time of acquisition, the machine was projected to have a lifespanof 15 years, and the management's initial estimation, which remains unchanged, posited that theresidual value would be negligible upon the completion of the aforementioned 15-year period. Themachine is subject to depreciation using the straight-line method, resulting in an annual depreciationexpense of RM500,000. As a result, the current book value of the equipment stands at RM2,500,000.According to the report provided by the R&D manager, there is a proposition to acquire a newspecialized machine at a cost of RM12,000,000, which includes expenses for freight and installation.This machine is projected to have a lifespan of five years and is expected to result in a reduction inboth labor and raw material consumption. Consequently, the annual operating costs are anticipatedto decrease from…