Watkins Construction and Engineering won a bid with the Growthand Environmental Management Department that will generate them$15,000 revenue/per year over the next three years. The projectrequires an acquisition of a new earth mover. The mover's basic priceis $40,000; it would cost another $10,000 to modify it for special use.The equipment falls in the 3-year MACRS class (33%, 45%, 15%, 7%)and will be sold after three years for $20,000. Tax rate is 40%. Theearth mover will also save the firm $20,000 per year in before-taxcosts. The project will also require an upfront investment of $2,000 inNOWC with 100% recovery of it at the end of the project. Computethe incremental cash flows for this project.

Revenue per year = $15,000Basic Price = $ 40,000Additional Price = $ 10,000To compute Incremental…

Answered: Watkins Construction and Engineering…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 7PB: Tree Lovers Inc. purchased 2,500 acres of woodland in which it intends to harvest the complete...

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Manny Carson, certified management accountant and controller of Wakeman Enterprises, has been given permission to acquire a new computer and software for the companys accounting system. The capital investment analysis showed an NPV of 100,000. However, the initial estimates of acquisition and installation costs were made on the basis of tentative costs without any formal bids. Manny now has two formal bids, one that would allow the firm to meet or beat the original projected NPV and one that would reduce the projected NPV by 50,000. The second bid involves a system that would increase both the initial cost and the operating cost. Normally, Manny would take the first bid without hesitation. However, Todd Downing, the owner of the firm presenting the second bid, is a close friend. Manny called Todd and explained the situation, offering Todd an opportunity to alter his bid and win the job. Todd thanked Manny and then made a counteroffer. Todd: Listen, Manny, this job at the original price is the key to a successful year for me. The revenues will help me gain approval for the loan I need for renovation and expansion. If I dont get that loan, I see hard times ahead. The financial stats for loan approval are so marginal that reducing the bid price may blow my chances. Manny: Losing the bid altogether would be even worse, dont you think? Todd: True. However, if you award me the job, Ill be able to add personnel. I know that your son is looking for a job, and I can offer him a good salary and a promising future. Additionally, Ill be able to take you and your wife on that vacation to Hawaii that weve been talking about. Manny: Well, you have a point. My son is having an awful time finding a job, and he has a wife and three kids to support. My wife is tired of having them live with us. She and I could use a vacation. I doubt that the other bidder would make any fuss if we turned it down. Its offices are out of state, after all. Todd: Out of state? All the more reason to turn it down. Given the states economy, it seems almost criminal to take business outside. Those are the kind of business decisions that cause problems for people like your son. Required: Evaluate the ethical behavior of Manny. Should Manny have called Todd in the first place? Would there have been any problems if Todd had agreed to meet the lower bid price? Identify the parts of the Statement of Ethical Professional Practice (Chapter 1) that Manny may be violating, if any.
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.
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.
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.
Colquhoun International purchases a warehouse for $300,000. The best estimate of the salvage value at the time of purchase was $15,000, and it is expected to be used for twenty-five years. Colquhoun uses the straight-line depreciation method for all warehouse buildings. After four years of recording depreciation, Colquhoun determines that the warehouse will be useful for only another fifteen years. Calculate annual depreciation expense for the first four years. Determine the depreciation expense for the final fifteen years of the assets life, and create the journal entry for year five.
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
For each of the following unrelated situations, calculate the annual amortization expense and prepare a journal entry to record the expense: A. A patent with a ten-year remaining legal life was purchased for $300,000. The patent will be usable for another eight years. B. A patent was acquired on a new smartphone. The cost of the patent itself was only $24,000, but the market value of the patent is $600,000. The company expects to be able to use this patent for all twenty years of its life.

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