Sh3 Sun Coast Tours is considering purchasing a new boat for use in its tour business. Relevant information concerning theboat is as follows: (Ignore income taxes.)Purchase costAnnual net cash inflows that will be provided by the boat $Life of the boat$ 250,00057,00010YesNoyearsRequired:1-a. Compute the payback period for the boat. (Round your answer to 1 decimal place.)1-b. If the company rejects all proposals with a payback period of more than five years, will the boat be purchased?multiple choice 12-a. Compute the simple rate of return on the boat. Use straight-line depreciation based on the boat's useful life,assuming $10,000 salvage value. (Round your answer to 1 decimal place.)2-b. Will the boat be purchased if the company's required rate of return is 12%?multiple choice 2YesNo

STEP 1 RATE OF RETURN The simple rate of return is calculated by dividing the additional net income…

Answered: Sun Coast Tours is considering…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 6CE

See similar textbooks

Similar questions

For its proposed expansion, an ice plant company is selecting from two offers of ice cans. The data on the offers are as follows: OFFER A OFFER B Total Cost P730,000 P650,000 Annual Maintenance P65,000 P91,008 No. of Life 12 8 For their replacements, the company is putting up a sinking fund to earn 17.5% interest compounded annually. If the money to purchase the ice cans is to be borrowed at 25% annual interest and the tax on the first cost is 3%, which offer will you recommend to be purchased? Show solutions.
Garrison Corporation is considering the replacement of an old machine that is currently being used. The old machine has a book value of $28,000. If Garrison decides to replace the old machine, Picco Company has offered to purchase it for $60,000 on the replacement date. Garrison has a tax rate of 40%. What is the after-tax cash flow associated with the salvage ofthe old machine? A. $32,000B. $36,000C. $47,200D. $40,800
A company is currently paying its employees $0.51 per mile to drive their own cars when on company business. However, it is considering supplying employees with cars, which would involve the following cost components: car purchase at $22,000 with an estimated three-year life; a net salvage value of $5,000; taxes and insurance at a cost of $1,000 per year; and operating and maintenance expenses of $0.25 per mile. If the interest rate is 10% and the company anticipates an employee's annual travel to be 30,000 miles, what is the equivalent cost per mile (without considering income tax)? Which plan is better?
This question is based on the following information: Sphinx Company is planning to invest in a machinery costing P 500,000 with an estimated useful life of 5 years with no salvage value. The use of this machinery will generate cash savings of P 175,000 before taxes. Income taxes are 20% each year, What is the payback reciprocal? 32% P 33% 34% 35% What is the payback period? 3.125 years 3.152 years 3.512 years 3,521 years
In a gaming room of a high-traffic video arcade wishes to determine the return on its video machine. The machine was purchased 1 year ago for P20,000 and currently has a market value of P21,500. During the year, it generated P800 of after-tax cash receipts. Calculate the annual rate of return, k, for the video machine.
Water Cutter Co. is considering purchasing a system to assist inw ater jet manfacturing. The system costs $200,000. It has an expected life of 7 years, at which time its salvage value will be $9,500. Operating and maintenance expenses are estimaed to be $20,000 per year. If the system is purchased, additional revenues will be $40,000 per year. Water Cutter Co. must borrow half of the purchases price. The bank as agreed to three equal annual payments, with the first payment due at the end of year 1. The loan interest rate i 16% compounded annually. Water Cutter Co's MARR is 15% compounded annually. 1. Calculate the loan payment amount. 2. Calculate the present worth of the investment. 3. Based on the present worth you calculated, should Water Cutter Co. purchase the system? Why or why not?
Water Cutter Co. is considering purchasing a system to assist inw ater jet manfacturing. The system costs $200,000. It has an expected life of 7 years, at which time its salvage value will be $9,500. Operating and maintenance expenses are estimaed to be $20,000 per year. If the system is purchased, additional revenues will be $40,000 per year. Water Cutter Co. must borrow half of the purchases price. The bank as agreed to three equal annual payments, with the first payment due at the end of year 1. The loan interest rate i 16% compounded annually. Water Cutter Co's MARR is 15% compounded annually. 1. Calculate the loan payment amount. 2. Calculate the present worth of the investment. 3. Based on the present worth you calculated, should Water Cutter Co. purchase the system? Why or why not? Water Cutter Co. is considering purchasing a system to assist inw ater jet manfacturing. The system costs $200,000. It has an expected life of 7 years, at which time its salvage value will be…
Stevie’s Sporting Goods is considering investing $33,000 in a new machine. The machine is expected to last five years and have a salvage value of $8,000. Annual after-tax net cash inflow from the machine is expected to be $7,000. Calculate the accounting rate of return (aka the unadjusted rate of return). (Enter your answer as a percentage rounded to one decimal place, but do NOT include the percentage sign. For example: 5 divided by 35 is 0.142857, which you would enter as “14.3”)
HKU purchased a face mask making machine to make face mask for the students and staffs at a price of $3.15 million. The net cash flow is estimated at $500,000 per year and a salvage value of $400,000 is anticipated regardless of when it is sold. (a) Determine, the number of years the machine must be used to obtain payback at MARR values of, 0%, 8% and 15% per year. (b) Plot the payback years against MARR obtained in (i) and discuss the behavior.
XYZ Company is building an addition (building and machinery) to its manufacturing plant to increase its production capacity. The cost of the addition is $1,230,000. Its lender is willing to make a loan to the company at 70% loan to value, for 20 years, payments made monthly, and at an interest rate of 5% APR. a. How much of the total cost is CAPEX and how much of the total cost is OPEX? b. How much cash must the company have to make the down payment? c. What is the monthly payment?
Lotus purchases a new machine for $20,000, and spends $2,000 on sales taxes, $500 for delivery, and $300 for installation of the new machine. What is the amount that will be capitalized on the company’s balance sheet? $22,500 $20,000 $22,000 $22,800
A firm considering the installation of an automatic data processing unit to handle some of its accounting operations. Machines for that purpose may be purchased for P20,000, or maybe leased for P8,000 for the first year and P1,000 less every year now and then until the end of the 4th year. If money is worth 15%, is it advisable to rent or buy the machine?

SEE MORE QUESTIONS

Recommended textbooks for you

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning