On 2020 05 15 Nunda Phenol Products (NNDPP) purchased a small chemnical refinery. The accountants estimated that the present cost to retire that asset at the end of June in 2040 (its scheduled end of life) would be $3.540 m. Chemical industry expert Josiah Carberry forecasts a 2.7% rate of inflation for the necessary work, and that a contractor would include $620 K MRP to lock in the price of doing the work twenty years in the future. The risk-free rate (rF) was 2.2 % and NNDPP's credit standing commanded a 310 bps spread to rF. Sarah Verhovek, the NNDPP controller, calculates ARO liabilities using continuous discounting and the 30/360 convention. For the ARO, she will book a Cr. of ($ m) O 2635

On 2020 05 15 Nunda Phenol Products (NNDPP) purchased a small chemnical refinery. The accountants estimated that the present cost to retire that asset at the end of June in 2040 (its scheduled end of life) would be $3.540 m. Chemical industry expert Josiah Carberry forecasts a 2.7% rate of inflation for the necessary work, and that a contractor would include $620 K MRP to lock in the price of doing the work twenty years in the future. The risk-free rate (rF) was 2.2 % and NNDPP's credit standing commanded a 310 bps spread to rF. Sarah Verhovek, the NNDPP controller, calculates ARO liabilities using continuous discounting and the 30/360 convention. For the ARO, she will book a Cr. of ($ m) O 2635

Name: On 2020 05 15 Nunda Phenol Products (NNDPP) purchased a small chermic
Uploaded: 2024-03-05T11:50:36.000Z
Channel: Bartleby
Description: On 2020 05 15 Nunda Phenol Products (NNDPP) purchased a small chermical refinery. The accountantsestimated that the present cost to retire that asset at the end of June in 2040 (its scheduled end of life) wouldbe $3.540 m. Chemical industry expert J

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 13P

See similar textbooks

Similar questions

Zhang Company is considering the purchase of a new machine. Its invoice price is $200,000, freightcharges are estimated to be $4,000, and installation costs are expected to be $6,000. Salvage value ofthe new machine is expected to be zero after a useful life of 4 years. Existing equipment could beretained and used for an additional 4 years if the new machine is not purchased. At that time, thesalvage value of the equipment would be zero. If the new machine is purchased now, the existingmachine would be scrapped. Zhang’s accountant, Victor Wang, has accumulated the following dataregarding annual sales and expenses with and without the new machine.Without the new machine, Zhang can sell 10,000 units of product annually at a per unit selling price of$100. If the new unit is purchased, the number of units produced and sold would increase by 25%, andthe selling price would remain the same.The new machine is faster than the old machine, and it is more efficient in its usage of materials.…
On January 1, 2021, Stanford Company purchased a mining site that will have to be restored to certain specifications when the mining production ceases. The cost of the mining site is P8,000,000 and the restoration cost is expected to be P2,000,000. It is estimated that the mine will continue in operation for 10 years. The appropriate discount rate is 8%. The present value of 1 at 8% for 10 periods is 0.4632. On December 31, 2030, the entity contracted with another entity for the restoration of the mining site in accordance with specifications at a cost of P1,800,000. 1. What is the carrying amount of the mining site as of December 31, 2025?
On December 1, 2021, HP Corp. is contemplating to invest into a new equipment costing P2,500,000 plus an installation cost of P200,000 to replace its old equipment that has a book value of P400,000 and a remaining useful life of 4 years. The estimated useful life of the new equipment is 4 years and has a salvage value of P500,000. If the company will favor the replacement decisions, the old equipment can be sold for P150,000 but additional working capital investment must be made amounting to P400,000. However, the company must incur a repair cost of P180,000 to continuously use the old equipment. The annual cash operating costs of the old equipment is P4,000,000 while the annual cash operating cost of the new equipment is P2,400,00. At the end of the useful life, cost to remove the new equipment will amount to P100,000. The company uses a tax rate of 35%, requires a payback period is 2.5 years or less, and accepts a minimum accounting rate of return is 15%. Compute for the net…
On December 1, 2021, HP Corp. is contemplating to invest into a new equipment costing P2,500,000 plus an installation cost of P200,000 to replace its old equipment that has a book value of P400,000 and a remaining useful life of 4 years. The estimated useful life of the new equipment is 4 years and has a salvage value of P500,000. If the company will favor the replacement decisions, the old equipment can be sold for P150,000 but additional working capital investment must be made amounting to P400,000. However, the company must incur a repair cost of P180,000 to continuously use the old equipment. Annual cash operating costs of the old equipment is P4,000,000 while the annual cash operating cost of the new equipment is P2,400,000. At the end of the useful life, cost to remove the new equipment will amount to P100,000 . The company uses a tax rate of 35% , requires a payback period is 2.5 years or less, and accepts a minimum accounting rate of return is 15%. Compute for the net…
On January 1, 2021, X Company bought a machine for $44,000. It's now January 1, 2022, and management is disappointed that 2021 operating costs with the machine were $32,000. Since they are expecting future operating costs to continue to be $32,000 a year, they are considering replacing the machine with a new one. Although the new machine will cost $47,000, operating costs with the new machine will decrease by $8,000 each year. Both machines will last for 4 more years. The current machine can be sold immediately for $8,000 but will have no salvage value at the end of 4 years. The new machine will have a salvage value of $4,000 at the end of 4 years. Assuming a discount rate of 8%, what is the net present value of replacing the current machine with the new one? Submit Answer Tries 0/4
Ramsis is a heavy equipment rental company. It is econsidering the purchase of Tower erane at a price of BD 775,000. This crane is expected to operate for 15 years before retirement with no salvage value at the end. The company is planning to rent the crane for BD 108,000 per year starting year 4 and the rental increases by 10% thereafter. Cost of this maintenance is expected to be BD 15,000 each year. a) What is the discounted payback period, if the MARR is 7% per year? b) In your engineering analysis study, which method would you select (Payback or Present worth) to solve this problem And why?
On January 1, 2021, X Company bought a machine for $42,000. It's now January 1, 2022, and management is disappointed that 2021 operating costs with the machine were $35,000. Since they are expecting future operating costs to continue to be $35,000 a year, they are considering replacing the machine with a new one. Although the new machine will cost $51,000, operating costs with the new machine will decrease by $8,000 each year. Both machines will last for 6 more years. The current machine can be sold immediately for $11,000 but will have no salvage value at the end of 6 years. The new machine will have a salvage value of $5,500 at the end of 6 years. Assuming a discount rate of 7%, what is the net present value of replacing the current machine with the new one?
Trask Industries, Inc. is considering replacing its old machine with a book value of P150,000 and still has aremaining useful life of three (3) years. The old machine will be replaced with a new one that will costP375,000, with a three-year useful life and no salvage value.The annual operating costs of the old machine amount to P180,000, which can be reduced by 55% if a newmachine is acquired. The old machine will have no disposal value after three (3) years but can be disposedof now at P60,000. a. Ignoring the time value of money and income taxes, determine the differential cost.b. Should the machine be retained or replaced?
ABC Company is considering replacing its machine with a newer one. The old machine has a book value of $661,842 with a remaining life of 5 years. It has been depreciated on a straight-line basis and can be sold now for $258,552. The new machine has a purchase price of $1,193,422 and an additional installation cost of $3,500. At the time of replacement, the company will need an increase in net working capital of $11,000. It has a 5-year MACRS class life with an estimated salvage value of $105,000 at the end of year 6. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new machine is expected to generate an annual savings of $250,000 in operating costs. The company's tax rate is 35%, and the project cost of capital is 14%. What is the initial net cash flow in YEAR 0 if the company purchases the new machine to replace the old one, which is sold right away? Round your answer to the nearest dollar, but do not enter $ in your answer. If your…
B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. Compute the (1) payback period and (2) accounting rate of return for this equipment. Check (1) 5.39 years, (2) 20.42% Sales . $225,000 Costs Materials, labor, and overhead (except depreciation on new equipment) . 120,000 Depreciation on new equipment 30,000 Selling and administrative expenses 22,500 Total costs and expenses 172,500 Pretax income 52,500 Income taxes (30%) . 15,750 Net income . $ 36,750
DEF Corporation built a factory that produces widgets at a cost of $100 million. The factory began its operation on January 1, 2022. The factory has a licensed to be in operations for 30 years and after that, the factory must be demolished and disposed of. At January 1, 2022, the cost of demolishing the factory was estimated to be $20 million. An appropriate discount rate is 5%, when the present value of $1 is $0.2314 in 30 years’ time. Requirement a.) What is the value of the provision in the statement of financial position at December 31, 2022 b.) What is the carrying amount of the factory at December 31, 2022?
B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. Compute the (1) payback period and (2) accounting rate of return for this equipment.