Percentages need to be entered in decimal format, for instance 3% would be entered as .03.Golden State Bakers, Inc. (GSB) has an opportunity to invest in a new dough machine. GSB needs more productive capacity, so the new machine will not replace an existing machine. The new machine is priced at $260,000 and will require modifications costing $15,000. The machine has an expected useful life of 10 years, will be depreciated using the MACRS method over its 5-year class life, and has an expected salvage value of $12,500 at the end of Year 10. (See Table 10A.2 for MACRS recovery allowance percentages on page 184 in the textbook.) The machine will require a $22,500 investment in net working capital (NWC). The machine is expected to generate additional sales revenues of $125,000 per year, but its use also will increase annual cash operating expenses by $55,000. GSB's required rate of return is 10%, and its marginal tax rate is 40%. The machine's book value at the end of Year 10 be $0, so GSB will have to pay taxes on the $12,500 salvage value. (This information is shown on the spreadsheet provided.)Based on the information in the spreadsheet, what is the NPV for of this expansion project? Should GSB purchase the new machine? Why or why not?Should GSB purchase the new machine if it is expected to be used for only five years and then sold for $31,250? Why or why not? (Note that the model on the spreadsheet is already set up to handle a five-year life; you need enter only the new live and salvage value.)Would the machine be profitable if revenues increased by only $105,000 per year? Assume a 10-year project life and a salvage value of $12,500. Explain your answer.Suppose that revenues rose by $125,000, but expenses (operating costs) were $65,000. Would the machine be acceptable under these conditions? Assume a 10-year project life and a salvage value of $12,500. Explain your answer.Suppose the revenues rose by $100,000, but expenses (operating costs) were $45,000. Would the machine be acceptable under these conditions? Assume a 10-year project life and a salvage value of $12,500. Explain your answer Chapter 10 Spreadsheet-Related Problem (C10)Expansion Project1. There are a number of instructions with which you should be familiarto use these computerized models. These instructions appear in aseparate worksheet labeled INSTRUCTIONS. If you have not alreadydone so, you should read these instructions now. To read theseinstructions, click on theworksheet labeled INSTRUCTIONS.2. The model is set up to deal with a situation where the entireinvestment outlay occurs at t=0 and the inflows occur over thesubsequent five to 10 years. Modification of the model would berequired to deal with a shorter or longer time frame.INPUT DATA:KEY OUTPUT:Base price($260,000)($15,000)($22,500)125,00055,00012,500NPVModifications57,186Increase in NWCIncrease in sales revenueOperating costsSalvage valueRequired rate of return10%Tax rate40%MACRS class life (years)Useful life (years)10MODEL-GENERATED DATA:Initial investment at t=0:Base priceModification($260,000)($15,000)($22,500)($297,500)Increase in NWCInitial investment outlayDepreciation schedule:Terminal cash flow:Salvage valueTax on sale of assetDepr. basis =$275,00012,500(5,000)22,500EndingYearMACRS DepreciationВookReverse of NWCRateAllowanceValueTerminal CF30,00055,000220,000132,00079,75010.2020.3288,00030.1952,25033,00030,25016,50040.1246,75016,5000.1160.06Annual cash flows:1234789.10Initial invest.(297,500)125,000(55,000)(55,000)15,000125,000(55,000)(16,500)53,500(21,400)32,100Sales increase125,000125,000125,000125,000125,000(55,000)(30,250)39,750125,000125,000125,000Operating costsDepreciation(55,000)(88,000)(18,000)7,200(10,800)(55,000)(52,250)17,750(7,100)10,65052,25062,900(55,000)(33,000)37,000(14,800)22,200(55,000)(55,000)(55,000)(55,000)70,000(28,000)42,00070,000(28,000)42,000Earn. b/f taxes70,000(28,000)42,00070,000(6,000)9,00055,00064,000(28,000)42,000Таxes(15,900)23,850Net incomeAdd back deprec.Supplemental oper. CFSalvage AT88,00077,20033,00055,20030,25054,10016,50048,60042,00042,00042,00042,00030,000Net cash flow(297,500)64,00077,20062,90055,20054,10048,60042,00042,00042,00072,000NPV57,186

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Percentages need to be entered in decimal format, for instance 3% would be entered as .03. Golden State Bakers, Inc. (GSB) has an opportunity to invest in a new dough machine. GSB needs more productive capacity, so the new machine will not replace an existing machine. The new machine is priced at $260,000 and will require modifications costing $15,000. The machine has an expected useful life of 10 years, will be depreciated using the MACRS method over its 5-year class life, and has an expected salvage value of $12,500 at the end of Year 10. (See Table 10A.2 for MACRS recovery allowance percentages on page 184 in the textbook.) The machine will require a $22,500 investment in net working capital (NWC). The machine is expected to generate additional sales revenues of $125,000 per year, but its use also will increase annual cash operating expenses by $55,000. GSB's required rate of return is 10%, and its marginal tax rate is 40%. The machine's book value at the end of Year 10 be $0, so GSB will have to pay taxes on the $12,500 salvage value. (This information is shown on the spreadsheet provided.) Based on the information in the spreadsheet, what is the NPV for of this expansion project? Should GSB purchase the new machine? Why or why not? Should GSB purchase the new machine if it is expected to be used for only five years and then sold for $31,250? Why or why not? (Note that the model on the spreadsheet is already set up to handle a five-year life; you need enter only the new live and salvage value.) Would the machine be profitable if revenues increased by only $105,000 per year? Assume a 10-year project life and a salvage value of $12,500. Explain your answer. Suppose that revenues rose by $125,000, but expenses (operating costs) were $65,000. Would the machine be acceptable under these conditions? Assume a 10-year project life and a salvage value of $12,500. Explain your answer. Suppose the revenues rose by $100,000, but expenses (operating costs) were $45,000. Would the machine be acceptable under these conditions? Assume a 10-year project life and a salvage value of $12,500. Explain your answer

Percentages need to be entered in decimal format, for instance 3% would be entered as .03. Golden State Bakers, Inc. (GSB) has an opportunity to invest in a new dough machine. GSB needs more productive capacity, so the new machine will not replace an existing machine. The new machine is priced at $260,000 and will require modifications costing $15,000. The machine has an expected useful life of 10 years, will be depreciated using the MACRS method over its 5-year class life, and has an expected salvage value of $12,500 at the end of Year 10. (See Table 10A.2 for MACRS recovery allowance percentages on page 184 in the textbook.) The machine will require a $22,500 investment in net working capital (NWC). The machine is expected to generate additional sales revenues of $125,000 per year, but its use also will increase annual cash operating expenses by $55,000. GSB's required rate of return is 10%, and its marginal tax rate is 40%. The machine's book value at the end of Year 10 be $0, so GSB will have to pay taxes on the $12,500 salvage value. (This information is shown on the spreadsheet provided.) Based on the information in the spreadsheet, what is the NPV for of this expansion project? Should GSB purchase the new machine? Why or why not? Should GSB purchase the new machine if it is expected to be used for only five years and then sold for $31,250? Why or why not? (Note that the model on the spreadsheet is already set up to handle a five-year life; you need enter only the new live and salvage value.) Would the machine be profitable if revenues increased by only $105,000 per year? Assume a 10-year project life and a salvage value of $12,500. Explain your answer. Suppose that revenues rose by $125,000, but expenses (operating costs) were $65,000. Would the machine be acceptable under these conditions? Assume a 10-year project life and a salvage value of $12,500. Explain your answer. Suppose the revenues rose by $100,000, but expenses (operating costs) were $45,000. Would the machine be acceptable under these conditions? Assume a 10-year project life and a salvage value of $12,500. Explain your answer

Accounting Information Systems

11th Edition

ISBN:9781337552127

Author:Ulric J. Gelinas, Richard B. Dull, Patrick Wheeler, Mary Callahan Hill

Publisher:Ulric J. Gelinas, Richard B. Dull, Patrick Wheeler, Mary Callahan Hill

Chapter17: Acquiring And Implementing Accounting Information Systems

Section: Chapter Questions

Problem 1P

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Percentages need to be entered in decimal format, for instance 3% would be entered as .03.

Golden State Bakers, Inc. (GSB) has an opportunity to invest in a new dough machine. GSB needs more productive capacity, so the new machine will not replace an existing machine. The new machine is priced at $260,000 and will require modifications costing $15,000. The machine has an expected useful life of 10 years, will be depreciated using the MACRS method over its 5-year class life, and has an expected salvage value of $12,500 at the end of Year 10. (See Table 10A.2 for MACRS recovery allowance percentages on page 184 in the textbook.) The machine will require a $22,500 investment in net working capital (NWC). The machine is expected to generate additional sales revenues of $125,000 per year, but its use also will increase annual cash operating expenses by $55,000. GSB's required rate of return is 10%, and its marginal tax rate is 40%. The machine's book value at the end of Year 10 be $0, so GSB will have to pay taxes on the $12,500 salvage value. (This information is shown on the spreadsheet provided.)

Based on the information in the spreadsheet, what is the NPV for of this expansion project? Should GSB purchase the new machine? Why or why not?
Should GSB purchase the new machine if it is expected to be used for only five years and then sold for $31,250? Why or why not? (Note that the model on the spreadsheet is already set up to handle a five-year life; you need enter only the new live and salvage value.)
Would the machine be profitable if revenues increased by only $105,000 per year? Assume a 10-year project life and a salvage value of $12,500. Explain your answer.
Suppose that revenues rose by $125,000, but expenses (operating costs) were $65,000. Would the machine be acceptable under these conditions? Assume a 10-year project life and a salvage value of $12,500. Explain your answer.
Suppose the revenues rose by $100,000, but expenses (operating costs) were $45,000. Would the machine be acceptable under these conditions? Assume a 10-year project life and a salvage value of $12,500. Explain your answer

Chapter 10 Spreadsheet-Related Problem (C10)
Expansion Project
1. There are a number of instructions with which you should be familiar
to use these computerized models. These instructions appear in a
separate worksheet labeled INSTRUCTIONS. If you have not already
done so, you should read these instructions now. To read these
instructions, click on theworksheet labeled INSTRUCTIONS.
2. The model is set up to deal with a situation where the entire
investment outlay occurs at t=0 and the inflows occur over the
subsequent five to 10 years. Modification of the model would be
required to deal with a shorter or longer time frame.
INPUT DATA:
KEY OUTPUT:
Base price
($260,000)
($15,000)
($22,500)
125,000
55,000
12,500
NPV
Modifications
57,186
Increase in NWC
Increase in sales revenue
Operating costs
Salvage value
Required rate of return
10%
Tax rate
40%
MACRS class life (years)
Useful life (years)
10
MODEL-GENERATED DATA:
Initial investment at t=0:
Base price
Modification
($260,000)
($15,000)
($22,500)
($297,500)
Increase in NWC
Initial investment outlay
Depreciation schedule:
Terminal cash flow:
Salvage value
Tax on sale of asset
Depr. basis =
$275,000
12,500
(5,000)
22,500
Ending
Year
MACRS Depreciation
Вook
Reverse of NWC
Rate
Allowance
Value
Terminal CF
30,000
55,000
220,000
132,000
79,750
1
0.20
2
0.32
88,000
3
0.19
52,250
33,000
30,250
16,500
4
0.12
46,750
16,500
0.11
6
0.06
Annual cash flows:
1
2
3
4
7
8
9.
10
Initial invest.
(297,500)
125,000
(55,000)
(55,000)
15,000
125,000
(55,000)
(16,500)
53,500
(21,400)
32,100
Sales increase
125,000
125,000
125,000
125,000
125,000
(55,000)
(30,250)
39,750
125,000
125,000
125,000
Operating costs
Depreciation
(55,000)
(88,000)
(18,000)
7,200
(10,800)
(55,000)
(52,250)
17,750
(7,100)
10,650
52,250
62,900
(55,000)
(33,000)
37,000
(14,800)
22,200
(55,000)
(55,000)
(55,000)
(55,000)
70,000
(28,000)
42,000
70,000
(28,000)
42,000
Earn. b/f taxes
70,000
(28,000)
42,000
70,000
(6,000)
9,000
55,000
64,000
(28,000)
42,000
Таxes
(15,900)
23,850
Net income
Add back deprec.
Supplemental oper. CF
Salvage AT
88,000
77,200
33,000
55,200
30,250
54,100
16,500
48,600
42,000
42,000
42,000
42,000
30,000
Net cash flow
(297,500)
64,000
77,200
62,900
55,200
54,100
48,600
42,000
42,000
42,000
72,000
NPV
57,186

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