Research and development
• LO10–8
In 2018, Starsearch Corporation began work on three research and development projects. One of the projects was completed and commercial production of the developed product began in December. The company’s fiscal year-end is December 31. All of the following 2016 expenditures were included in the R&D expense account:
Salaries and wages for: | |
Lab research | $ 300,000 |
Design and construction of preproduction prototype | 160,000 |
Quality control during commercial production | 20,000 |
Materials and supplies consumed for: | |
Lab research | 60,000 |
Construction of preproduction prototype | 30,000 |
Purchase of equipment | 600,000 |
Patent filing and legal fees for completed project | 40,000 |
Payments to others for research | 120,000 |
Total | $1,330,000 |
$200,000 of equipment was purchased solely for use in one of the projects. After the project is completed, the equipment will be abandoned. The remaining $400,000 in equipment will be used on future R&D projects. The useful life of equipment is five years. Assume that all of the equipment was acquired at the beginning of the year.
Required:
Prepare
Want to see the full answer?
Check out a sample textbook solutionChapter 10 Solutions
Intermediate Accounting
- CH 5#9 The A Corporation is considering the construction of a new plant to build a component part that it is currently purchasing. It has the following information. Item Cost Expected life Plant $20,000,000 40 years Utilities 10,000,000 20 years Equipment 15,000,000 10 years The operating costs are estimated at $5 million per year, assuming an output of 1 million units of product per year. The corporation uses a discount rate of 0.05. It can purchase the product at a cost of $10 per unit. Should the new plant be built (on a straight economic basis)?arrow_forwardP10–24 ALL TECHNIQUES, CONFLICTING RANKINGS Nicholson Roofing Materials Inc. is considering two mutually exclusive projects that both cost $150,000. The company’s board of directors has set a maximum four-year payback requirement, the cost of capital is 9%. The project cash flows appear below. a. Calculate the payback period for each project. b. Calculate the NPV of each project at 0%. c. Calculate the NPV of each project at 9%.arrow_forwardCH 5 #7 The New York State Utility Company is considering the construction of a new utility plant. It has accumulated the following cost information: Item Fossil plant (oil and gas) Nuclear plant Initial outlay $60,000,000 $100,000,000 Annual operating cost 15,000,000 20,000,000a Note a This is the projected cost for year 1. It is expected that the operating costs of the nuclear plant will decrease by $2,000,000 per year and level off at $10,000,000. The expected decrease is a result of decreased fuel costs. Both plants have an expected useful life of 50 years. Assume the hurdle rate for this project is 0.05 per year. Which plant should be built? Assume that if the nuclear plant is not built the needed electricity can be purchased at a cost of $16 million per year. Should it be built?arrow_forward
- Problem 11-06New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,140,000, and it would cost another $23,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $547,000. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $381,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%. What is the Year 0 net cash flow?$ What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3 $ What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round…arrow_forwardhw6 q9 Federated Manufacturing Incorporated (FMI) produces electronic components in three divisions: industrial, commercial, and consumer products. The commercial products division annually purchases 10,600 units of part 23–6711, which the industrial division produces for use in manufacturing one of its own products. The commercial division is growing rapidly; it is expanding its production and now wants to increase its purchases of part 23–6711 to 15,600 units per year. The problem is that the industrial division is at full capacity. No new investment in the industrial division has been made for some years because top management sees little future growth in its products, so its capacity is unlikely to increase soon. The commercial division can buy part 23–6711 from Advanced Micro Incorporated or from Admiral Electric, a customer of the industrial division now purchasing 680 units of part 88–461. The industrial division's sales to Admiral would not be affected by the commercial…arrow_forwardCh 25 Pro 6 Please give me instructions. E & T Excavation Company is planning an investment of $557,700 for a bulldozer. The bulldozer is expected to operate for 3,000 hours per year for 10 years. Customers will be charged $105 per hour for bulldozer work. The bulldozer operator costs $26 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $30,000. The bulldozer uses fuel that is expected to cost $34 per hour of bulldozer operation. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the equal annual net cash flows from operating the bulldozer.…arrow_forward
- Exercise 14-6 (Algo) Simple Rate of Return Method [LO14-6] The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $57,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $24,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)arrow_forwardKw.113. Ch 12/14 A Three-year property type class equipment was bought for $35,000. The first year 40% bonus was claimed. What will be the tax amount in the first year, if the company is in the 34% combined tax bracket? The revenue and expenses for the first year are $15,000 and expense $2,000 respectively.arrow_forwardOLA#10.4 A company is evaluating the feasibility of investing in machinery to manufacture an automotive component. It would need to make an investment of $520,000 today, after which, it would have to spend $8,000 every year starting one year from now, for eight years. At the end of the period, the machine would have a salvage value of $13,000. The company confirmed that it can produce and sell 8,900 components every year for eight years and the net return would be $12.70 per component. The company's required rate of return is 7.00%. a. What is the Net Present Value (NPV) of this investment option? b. Is the investment option feasible? Yes No Kindly use all the decimals DO NOT ROUNDarrow_forward
- OLA #10.4 A company is evaluating the feasibility of investing in machinery to manufacture an automotive component. It would need to make an investment of $520,000 today, after which, it would have to spend $8,000 every year starting one year from now, for eight years. At the end of the period, the machine would have a salvage value of $13,000. The company confirmed that it can produce and sell 8,900 components every year for eight years and the net return would be $12.70 per component. The company's required rate of return is 7.00%. a. What is the Net Present Value (NPV) of this investment option? b. Is the investment option feasible? Yes No Please reply using algebra in detailsarrow_forwardProblem 10-10 (Algo) Interest capitalization; weighted-average method [LO10-7] On January 1, 2021, the company obtained a $3 million loan with a 12% interest rate. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,230,000 March 1, 2021 720,000 June 30, 2021 380,000 October 1, 2021 670,000 January 31, 2022 990,000 April 30, 2022 1,305,000 August 31, 2022 2,340,000 On January 1, 2021, the company obtained a $3 million construction loan with a 12% interest rate. Assume the $3 million loan is not specifically tied to construction of the building. The loan was outstanding all of 2021 and 2022. The company’s other interest-bearing debt included two long-term notes of $5,600,000 and $7,600,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2021 and 2022. Interest is paid annually on all debt. The company’s fiscal year-end is…arrow_forwardOo.73. Subject :- Finance An waste management company is intent to make an investment of $10,100, that can produce an annual revenue of $5,310 for seven years. An annual additional return is $3,000 at the end of each year for operating and maintaining the project. After the seven years, company has to cede working, and goverment will undertake the company. At the return rate of 0.7%, what is the Net Present Value ? NB: Use xx.xxxx (four decimals) format to anser the question. *the excel formula and tables if necesarryarrow_forward