MANAGERIAL ACCOUNTING
16th Edition
ISBN: 9781260936322
Author: Garrison
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 13.A, Problem 5E
Exercises 13A-5 Basic Present Value Concepts L013-7
The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value.
Required:
What is the maximum price (i.e, the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required
- Sixteen percent?
- Twenty percent?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Basic Present Value Concepts
The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value.
Required:
What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic’s required rate of return is:
1. Sixteen percent?
2. Twenty percent?
Q6) IBM networks want to modernize their networking system. Proposals have been received from two major software companies. The first proposal cost $6million but will raise the firm’s annual cash flows by $3million. The second proposal cost $7million and provides cash flow of $3.5million a year. Both projects have a life span of 3 years. Assuming that the cost of capital is 8%, which proposal may be recommended on the basis of Net Present Value criteria.
Select one:
a. Project B, NPV 1731290
b. Project A, NPV 20198
c. Project B, NPV 2019839
d. Project A, NPV 2019839
Question 9: You have a opportunity to make a investment that has $10.000,000 landing, 1.500.000 machine, outsourcing 500.000 and finance cost 1.000.000. Machines have 1.000.000 scrap value at end of 5th year. You will pay interest payment at the end of project, that is $400.000. If you make this investment now, you will receive $4.500,000 one year from today, $3.000,000, $5.000,000 and $ 4.000,000 respectively. The appropriate discount rate for this investment is 15 percent. Tax rate is % 30. Should you make the investment?
Chapter 13 Solutions
MANAGERIAL ACCOUNTING
Ch. 13.A - Prob. 1ECh. 13.A - Prob. 2ECh. 13.A - Prob. 3ECh. 13.A - Prob. 4ECh. 13.A - Exercises 13A-5 Basic Present Value Concepts...Ch. 13.A - Prob. 6ECh. 13.C - Prob. 1ECh. 13.C - Prob. 2ECh. 13.C - PROBLEM 13C-3 Income Taxes and Net Present Value...Ch. 13.C - Prob. 4P
Ch. 13.C - PROBLEM 13C-5 Income Taxes and Net Present Value...Ch. 13 - Prob. 1QCh. 13 - Prob. 2QCh. 13 - Prob. 3QCh. 13 - Prob. 4QCh. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Prob. 7QCh. 13 - Prob. 8QCh. 13 - Prob. 9QCh. 13 - Prob. 10QCh. 13 - Prob. 11QCh. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - What is the major criticism of the payback and...Ch. 13 -
The Excel worksheet form that appears below is to...Ch. 13 - Prob. 1F15Ch. 13 - Prob. 2F15Ch. 13 - Prob. 3F15Ch. 13 - Prob. 4F15Ch. 13 - Prob. 5F15Ch. 13 - Prob. 6F15Ch. 13 - Prob. 7F15Ch. 13 - Prob. 8F15Ch. 13 - Prob. 9F15Ch. 13 - Prob. 10F15Ch. 13 - (
595.000
)...Ch. 13 - Prob. 12F15Ch. 13 - Prob. 13F15Ch. 13 - Prob. 14F15Ch. 13 - Prob. 15F15Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 -
EXERCISE 13-15 Internal Rateof Return and Net...Ch. 13 - Prob. 16PCh. 13 - PROBLEM 13-17 Net Present Value Analysis; Internal...Ch. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 26PCh. 13 -
PROBLEM 13-27 Net Present Value Analysis...Ch. 13 - Prob. 28PCh. 13 - Prob. 29PCh. 13 - Prob. 30PCh. 13 - Prob. 31CCh. 13 - Prob. 32C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Q6) IBM networks want to modernize their networking system. Proposals have been received from two major software companies. The first proposal cost $6million but will raise the firm’s annual cash flows by $3million. The second proposal cost $7million and provides cash flow of $3.5million a year. Both projects have a life span of 3 years. Assuming that the cost of capital is 8%, which proposal may be recommended on the basis of Net Present Value criteria.arrow_forwardRequired information Exercise 12-8 (Algo) Payback Period and Simple Rate of Return [LO12-1, LO12-6] [The following information applies to the questions displayed below.] Nick’s Novelties, Incorporated, is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $392,000, have a fifteen-year useful life, and have a total salvage value of $39,200. The company estimates that annual revenues and expenses associated with the games would be as follows: Revenues $ 300,000 Less operating expenses: Commissions to amusement houses $ 90,000 Insurance 72,000 Depreciation 23,520 Maintenance 40,000 225,520 Net operating income $ 74,480 Exercise 12-8 Part 1 (Algo) Required: 1a. Compute the payback period associated with the new electronic games. Payback period (answer in years) 1b. Assume that Nick’s Novelties, Incorporated, will not purchase new games unless they provide a payback period of…arrow_forwardQuestion 17 Boyertown Industrial Tools is considering a 2-year project to improve its production efficiency. They have spent $25,000 over the previous year researching a new machine press. Buying the new machine press for $500,000 is estimated to result in $300,000 in annual pretax cost savings and will provide quarterly dividends of $2,500 to the shareholders. The press falls in the MACRS three-year class, and it will have a salvage value at the end of the project of $100,000. The press also requires an initial investment in spare parts inventory of $50,000, along with an additional $5,000 in inventory for each succeeding year of the project. If the tax rate is 35, what is the aftertax salvage value for the machine press? Property Class Year 3Year 5 year 7 year 1 33.33 20.00 14.29 2 44.45…arrow_forward
- Q4. Architect services, Inc, would like to purchase a Blueprint Machine for $50,000. The machine is expected to have a life of 4 years, and a salvage value of $10,000. Annual maintenance costs will total $14,000. Annual savings are predicted to be $30,000. Determine the payback period for this investment..arrow_forwardA3 9b You are considering a project that will supply an automobile production facility with 35,000 tonnes of machine screws annually for five years. To get the project started, you will need an initial investment of $1,500,000 in threading equipment. The project will last for five years. The accounting department estimates that annual fixed costs will be $300,000 and that variable costs should be $200 per tonne. The CCA rate for threading equipment is 20%. Accounting estimates a salvage value of $500,000 after costs of dismantling. The marketing department estimates that the auto makers will accept the contract at a selling price of $250 per tonne. The engineering department estimates you will need an initial net working capital investment of $450,000. You require a 15% return and face a marginal tax rate of 38% on this project. b. Suppose you believe that the accounting department’s initial cost and salvage projections are accurate only to within ±15%; the marketing department’s…arrow_forwardQuestion 12 Outdoor Sports is considering adding a miniature golf course to its facility. The course would require a $138,000 loan with annual interest of $6,000, and the course would be depreciated on a straight line basis over its 5-year life with a zero salvage value. The estimated income from the golfing fees would be $72,000 a year with $24,000 of that amount being variable cost. The fixed cost would be $11,600. In addition, the firm anticipates an additional $14,000 in revenue from its existing facilities if the golf course is added. However, the firm expects its driving range income will decrease by $9,000 each year since the golf course across town closed down. The project will require $3,000 of net working capital, which is recoverable at the end of the project. If Outdoor Sports has a tax rate of 34 percent and a discount rate of 12 percent, what is the net present value of this project? Hint: Get operational cash flow first. Group of answer choices $11,309…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_forwardComplete solution 6. The Green Spaces project involves purchasing equipment worth $300,000. Assuming a flat rate depreciation of 10% per year, calculate the book value of the equipment after 4 years (define a recurrence relation to answer this question). 7. If the Residential Infrastructure budget is used to purchase specialized machinery costing $800,000 with a unit cost depreciation of $20,000 per year, determine the book value after 3 years (define a recurrence relation to answer this question). The city expects the population in the Residential Infrastructure area to grow exponentially at a rate of 2% per year. a. Calculate the projected population after 10 years if the current population is 50,000 (define a recurrence relation to answer this question). b. Draw a graph illustrating the population growth over 10 years.arrow_forwardQuestion 18 Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new…arrow_forward
- 16) New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $810,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $471,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $16,500. The sprayer would not change revenues, but it is expected to save the firm $314,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? ________$ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $…arrow_forwardA3 9a You are considering a project that will supply an automobile production facility with 35,000 tonnes of machine screws annually for five years. To get the project started, you will need an initial investment of $1,500,000 in threading equipment. The project will last for five years. The accounting department estimates that annual fixed costs will be $300,000 and that variable costs should be $200 per tonne. The CCA rate for threading equipment is 20%. Accounting estimates a salvage value of $500,000 after costs of dismantling. The marketing department estimates that the auto makers will accept the contract at a selling price of $250 per tonne. The engineering department estimates you will need an initial net working capital investment of $450,000. You require a 15% return and face a marginal tax rate of 38% on this project. a. What is the NPV for this project? Should you pursue this project?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License