Managerial Accounting: Tools For Business Decision Making, Seventh Edition Wileyplus Card
7th Edition
ISBN: 9781118680698
Author: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel
Publisher: John Wiley & Sons Inc
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Chapter 12, Problem 12.11E
Drake Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment’s life.
Drake Corporation uses an 11% target rate of
Instructions
(a) What is the cash payback period for this proposal?
(b) What is the annual rate of return for the investment?
(c) What is the
(CMA-Canada adapted)
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Drake Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment’s life.
Investment Proposal
Year
Initial Costand Book Value
AnnualCash Flows
AnnualNet Income
0
$105,900
1
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$44,100
$7,500
2
42,600
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3
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4
6,500
29,800
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5
0
24,400
17,900
Drake Corporation uses an 11% target rate of return for new investment proposals.(a)What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.)
Cash payback…
Crane Corporation is reviewing an investment proposal. The initial cost is $104,600. Estimates of the book
value of the investment at the end of each year, the net cash flows for each year, and the net income for each
year are presented in the following schedule. All cash flows are assumed to take place at the end of the year. The
salvage value of the investment at the end of each year is assumed to equal its book value. There would be no
salvage value at the end of the investment's life.
Year
1
2
3
4
5
Book
Value
Investment Proposal
$69,900
41,000
(b)
21,000
7,600
0
Annual
Cash Flows
Click here to view PV table.
Cash payback period
$46,000
40,600
36,000
31,000
24,220
Annual
Net Income
$11,300
11,700
Crane Corporation uses an 11% target rate of return for new investment proposals.
Annual rate of return for the investment
16,000
17,600
(a)
What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.)
16,620
3
years
What is the annual rate of return…
Blossom Corporation is reviewing an investment proposal. The initial cost is $105,700. Estimates of the book value of the investment
at the end of each year, the net cash flows for each year, and the net income for each year are presented in the following schedule. All
cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is assumed to
equal its book value. There would be no salvage value at the end of the investment's life.
Investment Proposal
Annual
Year
Book Value
Cash Flows
Annual
Net Income
1
$70,500
$44,900
$9,700
2
42,400
39,200
11,100
3
20,600
36,000
14,200
4
6,800
29,100
15,300
5
0
25,205
18,405
Blossom Corporation uses an 11% target rate of return for new investment proposals.
1
Chapter 12 Solutions
Managerial Accounting: Tools For Business Decision Making, Seventh Edition Wileyplus Card
Ch. 12 - Prob. 1QCh. 12 - Prob. 2QCh. 12 - Tom Wells claims the formula for the cash payback...Ch. 12 - Prob. 4QCh. 12 - What is the decision rule under the net present...Ch. 12 - Discuss the factors that determine the appropriate...Ch. 12 - What simplifying assumptions were made in the...Ch. 12 - What are some examples of potential intangible...Ch. 12 - What steps can be taken to incorporate intangible...Ch. 12 - Prob. 10Q
Ch. 12 - Prob. 11QCh. 12 - Prob. 12QCh. 12 - Prob. 13QCh. 12 - What are the strengths of the annual rate of...Ch. 12 - Prob. 15QCh. 12 - Prob. 16QCh. 12 - Prob. 12.1BECh. 12 - Hsung Company accumulates the following data...Ch. 12 - Thunder Corporation, an amusement park, is...Ch. 12 - Caine Bottling Corporation is considering the...Ch. 12 - McKnight Company is considering two different,...Ch. 12 - Prob. 12.6BECh. 12 - Prob. 12.7BECh. 12 - Prob. 12.8BECh. 12 - Prob. 12.9BECh. 12 - Prob. 12.1DICh. 12 - Prob. 12.2DICh. 12 - Prob. 12.3DICh. 12 - Prob. 12.4DICh. 12 - Prob. 12.5DICh. 12 - Prob. 12.1ECh. 12 - Doug's Custom Construction Company is considering...Ch. 12 - Prob. 12.3ECh. 12 - BAK Corp. is considering purchasing one of two new...Ch. 12 - Bruno Corporation is involved in the business of...Ch. 12 - BSU Inc. wants to purchase a new machine for...Ch. 12 - Iggy Company is considering three capital...Ch. 12 - Prob. 12.8ECh. 12 - Legend Service Center just purchased an automobile...Ch. 12 - Vilas Company is considering a capital investment...Ch. 12 - Drake Corporation is reviewing an investment...Ch. 12 - U3 Company is considering three long-term capital...Ch. 12 - Prob. 12.2APCh. 12 - Brooks Clinic is considering investing in new...Ch. 12 - Jane's Auto Care is considering the purchase of a...Ch. 12 - Prob. 12.5APCh. 12 - Prob. 12CDCh. 12 - Luang Company is considering the purchase of a new...Ch. 12 - Prob. 12.2BYPCh. 12 - Tecumseh Products Company has its headquarters in...Ch. 12 - Prob. 12.4BYPCh. 12 - Prob. 12.5BYPCh. 12 - Prob. 12.6BYPCh. 12 - Prob. 12.8BYP
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- Drake Corporation is reviewing an investment proposal. The initial cost is $105,700. Estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is assumed to equal its book value. There would be no salvage value at the end of the investment's life. Year 1 2 3 4 Investment Proposal Book Value $70,500 42,400 20,600 6,800 Annual Annual Cash Flows Net Income $9,700 11.100, $44,900 39.200 36,000 29,100 25,205 14,200 15,300 18,405 Drake Corporation uses an 11% target rate of return for new investment proposals. Click here to view the factor table. SUarrow_forwardWade Corporation is reviewing an investment proposal. The initial cost is $105,000. Estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Year 1 2 3 4 5 Investment Proposal Annual Book Value Cash Flows $70,000 42,000 21,000 7,000 0 $45,000 40,000 35,000 30,000 25,000 Annual Net Income $16,000 18,000 20,000 22,000 24,000 Wade Corporation uses a 15% target rate of return for new investment proposals. a. What is the cash payback period for this proposal? b. What is the annual rate of return for the investment? c. What is the net present value of the investment?arrow_forwardMetro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year are presented in the following schedule. The salvage value of the investment at the end of each year is equal to its book value. There would be no salvage value at the end of the investment's life. Year 0 1 2 3 Initial Cost and Book Value $240,000 160,000 96,000 48,000 16,000 Annual Net After-Tax Cash Flows Exercise 16-37 Part 3 $103,000 89,000 75,000 61,000 47,000 Annual Net Income $23,000 25,000 27,000 29,000 31,000 Management uses a 14 percent after-tax target rate of return for new investment proposals. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) 3. Compute the proposal's net present value. (Round intermediate calculations to the nearest whole dollar.) Net present valuearrow_forward
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