Kelly's Corner Bakery purchased a lot in Oil City 6 years ago at a cost of $302,000. Today, that lot has a market value of $340,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.51 million. What amount should be used as the initial cash flow for this project?
Q: An entrepreneurial civil engineer who owns his own design/build company purchased a small crane 2…
A: P= First Price, i.e. $71,000 S= Salvage Value, i.e. $10,000 n= No. of years, i.e. 4
Q: What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating…
A: Information Provided: Selling price = $7.7 million Bought land (price) = $5.3 million New…
Q: A highway construction firm purchased a particular earthmoving machine 3 years ago for $125,000. The…
A: The annual cash flows of existing method are as follows: Resultant table:
Q: The Erley Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had…
A: Capital budgeting techniques helps a company to select among the alternative available investment to…
Q: The Arkansas Division of ADM, a large agricultural products corporation, purchased a…
A: The value to determine the economic analysis of the current asset (defender) is the current market…
Q: Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more…
A: The question is based on the concept of replacement decision, the old machine can be replaced to get…
Q: A construction company operates a bulldozer that initially costs $28,000. The first year maintenance…
A: Salvage value is the only cash inflow present in this question. So, salvage value shall be reduced…
Q: What is the capital cost allowance in the first year
A: The project will require $286,600 for the purchase of the new machine. There will be $11,000 in…
Q: The Square Market has decided to expand its retail store by building on a vacant lot it currently…
A: Net present value method: Net present value method id the method which is used to compare the…
Q: Your firm is replacing a manually-operated machine with a fully automated machine. The old machine…
A: The net amount of cash and cash equivalents that are transferred into and out of a business is…
Q: Brown Company is considering the purchase of a new machine to replace an existing one. The old…
A: The capital budgeting is a tool to evaluate a project so that a decision can be made whether to go…
Q: A firm is planning to replace an old machine that was acquired several years ago at a cost of…
A: Here in this question, we are required to calculate net cost of investment. For calculating that…
Q: The Zhang Equipment Company’s machine was purchased 5 years ago for $55,000. It had an expected life…
A: We have to use Macrs 5 years depreciation table to calculate depreciation.
Q: An eco-industrial park has a manufacturing plant which purchased a lathe machine for P57,500 seven…
A: Reserve for machine replacement using straight-line depreciation : = (P57,500 / 20 ) * 7 = P20,125…
Q: Jayco, Inc. would like to set up a new plant. Currently, Jayco has the opportunity to buy an…
A: Net present value of this project needs to be determined to understand if the project can be…
Q: The Zhang Equipment Company’s machine was purchased 5 years ago for $55,000. It had an expected life…
A: Net present value is the difference between the present value of cash inflows and present value of…
Q: Five years ago, a piece of equipment was purchased at a cost of $170,000, with a salvage value of…
A: Net present value is a technique to evaluate different investment proposals and select the best one.…
Q: What is the net present value of the project if the required rate of return is 10 percent
A: Net Present Value is the difference between cash inflow and outflow. When, cash inflow is greater…
Q: The Erley Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had…
A: Given Old machine purchase price - $100,000 Life -10 years - remaining life 5 years Salvage value…
Q: Two years ago, a FN325 Lathe machine was purchased with an estimated salvage value of RM2,000 at the…
A: The Incremental NPV: The incremental investment and the present value of savings from the new…
Q: There is unused space in the factory. This space can either be rented to another business for…
A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…
Q: If money is worth 10% to the company, should the old machine be replaced?
A: Depreciation :- Depreciation means the reduced value of the machine or an asset that a company…
Q: A firm is planning to replace an old machine that was acquired several years ago at a cost of…
A: Calculation of total cost of new machine purchase price = $800,000 Add :-Trade in…
Q: A small factory is considering replacing its existing coining press with a newer, more efficient…
A: Net Present Value is the capital budgeting technique used to know the profitability of the project.…
Q: Duluth Medico purchased a digital imageprocessing machine three years ago at a cost of$50,000. The…
A: Replacement analysis is a technique to know the profitability of new asset as compare to old asset.…
Q: Francisco Corporation is constructing a new building at a total initial cost of $10,000,000. The…
A: The correct answer is Option (c).
Q: One year ago, Machine A was purchased for $15,000, to be used for 5 years. The machine has not…
A:
Q: The Darlington Equipment Company purchased a machine 5 years ago at a cost of $85,000. The machine…
A: NPV NPV is a capital budgeting tool to decide on the capital project whether it should be accepted…
Q: A few years ago, Nuts, Bolts and Brackets, Inc purchased a small warehouse. The firm paid $2.200,000…
A: Capital expenditures refer to the amount of money spent for acquiring fixed assets or properties…
Q: DEF company is considering purchasing a new rubber extrusion line that produces rolling bands,…
A: Operating Cash Flows: It is amount of cash generated by a business operations. It indicates…
Q: National Chemicals has an automatic chemical mixer that it has been using for the past 4 years. The…
A: Scrapping old mixer and purchase of larger mixer Cash flow at year 0= initial investment in larger…
Q: A civil engineer who owns his own design/build/operate company purchased a small crane 3 years ago…
A: Replacement analysis is the process by which the various costs consequences involved are studied so…
Q: Dell is considering replacing one of its material handling systems. The old system was purchased 7…
A: a.Calculation of cash flow of both alternatives using cash flow approach (insider’s viewpoint…
Q: International Soup Company is considering replacing a canning machine. The old machine is being…
A: Net present value is the difference between the present value of cash inflows and present value of…
Q: The Telephone Company of America purchased a numerically controlled production machine 5 years ago…
A: Present Worth analysis is the estimation of discounted value of future cash flows. It is used to…
Q: Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old…
A: Hence, cash outflows are $9,975 which is determined by subtracting initial price of the new project…
Q: national Soup Company is considering replacing a canning machine. The old machine is being…
A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…
Q: Management of Plascencia Corporation is considering whether to purchase a new model 370 machine…
A: Differential cost: Differential cost means the difference between cost of two alternatives.…
Q: Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought…
A: cash flow at Initial investment means the cost of the project that is being borne by the company and…
Q: Wooden Box, Corp. bought land on the outskirts of Portland, Oregon for its factory in 1912 for…
A: The following situation is evaluated in the records of Wooden Box Corporation.
Q: The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a…
A: The cash flows refer to the payments or receipts of the amount. The cash flows from projects include…
Q: A contractor has purchased a small backhoe for $120,000 that he plans to use in excavating ditches…
A: Operating cost: Operating cost can be defined as the cost that is incurred in the basic business…
Q: A civil engineer who owns his own design/build/operate company purchased a small crane 3 years go at…
A: Replacement analysis: It is the decision related to the replacement or sale of an existing asset to…
Q: Finch, Inc., has purchased a new server and must decide what to do with the old one. The cost of the…
A: In differential ananlysis we compare two or more revenues in order to find out…
Q: ssuming a 20% tax rate, calculete the initial investment associated with the replacement project.
A:
Kelly's Corner Bakery purchased a lot in Oil City 6 years ago at a cost of $302,000. Today, that lot has a market value of $340,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.51 million. What amount should be used as the initial cash flow for this project?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Tree Lovers Inc. purchased 2,500 acres of woodland in which it intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid $5,000,000 for the land. Tree Lovers will sell the lumber as it is harvested and it expects to deplete it over ten years (150 acres in year one, 300 acres in year two, 250 acres in year three, 150 acres in year four, and 100 acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one.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?St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost 182,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from 27,000 to 74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 25%, and the project cost of capital is 12%. What is the NPV if the firm replaces the old welder with the new one?
- Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.Urquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was $45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the assets life, and create the journal entry for year eleven.
- Gimli Miners recently purchased the rights to a diamond mine. It is estimated that there are one million tons of ore within the mine. Gimli paid $23,100,000 for the rights and expects to harvest the ore over the next ten years. The following is the expected extraction for the next five years. Year 1: 50,000 tons Year 2: 90,000 tons Year 3: 100,000 tons Year 4: 110,000 tons Year 5: 130,000 tons Calculate the depletion expense for the next five years, and create the journal entry for year one.Basuras Waste Disposal Company has a long-term contract with several large cities to collect garbage and trash from residential customers. To facilitate the collection, Basuras places a large plastic container with each household. Because of wear and tear, growth, and other factors, Basuras places about 200,000 new containers each year (about 20% of the total households). Several years ago, Basuras decided to manufacture its own containers as a cost-saving measure. A strategically located plant involved in this type of manufacturing was acquired. To help ensure cost efficiency, a standard cost system was installed in the plant. The following standards have been established for the products variable inputs: During the first week in January, Basuras had the following actual results: The purchasing agent located a new source of slightly higher-quality plastic, and this material was used during the first week in January. Also, a new manufacturing process was implemented on a trial basis. The new process required a slightly higher level of skilled labor. The higher- quality material has no effect on labor utilization. However, the new manufacturing process was expected to reduce materials usage by 0.25 pound per container. Required: 1. CONCEPTUAL CONNECTION Compute the materials price and usage variances. Assume that the 0.25 pound per container reduction of materials occurred as expected and that the remaining effects are all attributable to the higher-quality material. Would you recommend that the purchasing agent continue to buy this quality, or should the usual quality be purchased? Assume that the quality of the end product is not affected significantly. 2. CONCEPTUAL CONNECTION Compute the labor rate and efficiency variances. Assuming that the labor variances are attributable to the new manufacturing process, should it be continued or discontinued? In answering, consider the new processs materials reduction effect as well. Explain. 3. CONCEPTUAL CONNECTION Refer to Requirement 2. Suppose that the industrial engineer argued that the new process should not be evaluated after only one week. His reasoning was that it would take at least a week for the workers to become efficient with the new approach. Suppose that the production is the same the second week and that the actual labor hours were 9,000 and the labor cost was 99,000. Should the new process be adopted? Assume the variances are attributable to the new process. Assuming production of 6,000 units per week, what would be the projected annual savings? (Include the materials reduction effect.)Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
- Tuttle Construction Co. specializes in building replicas of historic houses. Tim Newman, president of Tuttle Construction, is considering the purchase of various items of equipment on July 1, 2014, for 400,000. The equipment would have a useful life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Tim is considering depreciating the equipment by the straight-line method. He discussed the matter with his CPA and learned that, although the straight-line method could be elected, it was to his advantage to use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. He asked for your advice as to which method to use for tax purposes. 1. Compute depreciation for each of the years (2014, 2015, 2016, 2017, 2018, and 2019) of useful life by (a) the straight-line method and (b) MACRS. In using the straight-line method, one-half years depreciation should be computed for 2014 and 2019. Use the MACRS rates presented in Exhibit 9. 2. Assuming that income before depreciation and income tax is estimated to be 750,000 uniformly per year and that the income tax rate is 40%, compute the net income for each of the years 2014, 2015, 2016, 2017, 2018, and 2019 if (a) the straight-line method is used and (b) MACRS is used. 3. What factors would you present for Tims consideration in the selection of a depreciation method?Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one it expects to use the truck for 26,000 miles. Calculate the annual depreciation expense.Tree Lovers Inc. purchased 100 acres of woodland in which the company intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid $2,100,000 for the land. Tree Lovers will sell the lumber as it is harvested and expects to deplete it over five years (twenty acres in year one, thirty acres in year two, twenty-five acres in year three, fifteen acres in year four, and ten acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one.