MANAGERIAL ACCT(LL)+CONNECT+PROCTORIO PL
17th Edition
ISBN: 9781265574826
Author: Garrison
Publisher: MCG
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Exercise 14-9 (Algo) Net Present Value Analysis and Simple Rate of Return [LO14-2, LO14-6]
Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on
Investment (ROI), which has been above 25% each of the last three years. Derrick is considering a capital budgeting project requiring a
$4,650,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The
project would provide net operating income each year for five years as follows:
Sales
Variable expenses
Contribution margin.
Fixed expenses:
Advertising, salaries, and other fixed
out-of-pocket costs
$ 745,000
930,000
$ 4,000,000
1,750,000
2,250,000
Depreciation
Total fixed expenses
Net operating income
Click here to view Exhibit 148-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the project's net present value.
2. Compute the project's simple…
The following information is provided.
Project Income Investment
A P33,000 P300,000
B P56,250 P750,000
C P27,500 P550,000
Assume the division's current ROI is 10% and the firms minimum required rate of return is 7%.
If you were the president of the company, which projects would you want the division manager to accept?
a. A, B and C
b. A and C
c. A and B
d. A only
e. B only.
Please answer all questions. I would hate to use another question because of 1 extra part.
Problem 12-17 (Algo) Net Present Value Analysis; Internal Rate of Return; Simple Rate of Return [LO12-2, LO12-3, LO12-6]
Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,900,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 18%. The project would provide net operating income each year for five years as follows:
Sales
$ 3,800,000
Variable expenses
1,760,000
Contribution margin
2,040,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$ 740,000
Depreciation
780,000
Total fixed expenses
1,520,000
Net operating income
$ 520,000
Click here to…
Chapter 14 Solutions
MANAGERIAL ACCT(LL)+CONNECT+PROCTORIO PL
Ch. 14.A - Prob. 1ECh. 14.A - Prob. 2ECh. 14.A - Prob. 3ECh. 14.A - Prob. 4ECh. 14.A - Exercises 13A-5 Basic Present Value Concepts...Ch. 14.A - Prob. 6ECh. 14.C - Prob. 1ECh. 14.C - Prob. 2ECh. 14.C - PROBLEM 13C-3 Income Taxes and Net Present Value...Ch. 14.C - Prob. 4P
Ch. 14.C - PROBLEM 13C-5 Income Taxes and Net Present Value...Ch. 14 - Prob. 1QCh. 14 - Prob. 2QCh. 14 - Prob. 3QCh. 14 - Prob. 4QCh. 14 - Prob. 5QCh. 14 - Prob. 6QCh. 14 - Prob. 7QCh. 14 - Prob. 8QCh. 14 - Prob. 9QCh. 14 - Prob. 10QCh. 14 - Prob. 11QCh. 14 - Prob. 12QCh. 14 - Prob. 13QCh. 14 - Prob. 14QCh. 14 - What is the major criticism of the payback and...Ch. 14 -
The Excel worksheet form that appears below is to...Ch. 14 - Prob. 2AECh. 14 - Prob. 1F15Ch. 14 - Prob. 2F15Ch. 14 - Prob. 3F15Ch. 14 - Prob. 4F15Ch. 14 - Prob. 5F15Ch. 14 - Prob. 6F15Ch. 14 - Prob. 7F15Ch. 14 - Prob. 8F15Ch. 14 - Prob. 9F15Ch. 14 - Prob. 10F15Ch. 14 - (
595.000
)...Ch. 14 - Prob. 12F15Ch. 14 - Prob. 13F15Ch. 14 - Prob. 14F15Ch. 14 - Prob. 15F15Ch. 14 - Prob. 1ECh. 14 - Prob. 2ECh. 14 - Prob. 3ECh. 14 - Prob. 4ECh. 14 - Prob. 5ECh. 14 - Prob. 6ECh. 14 - Prob. 7ECh. 14 - Prob. 8ECh. 14 - Prob. 9ECh. 14 - Prob. 10ECh. 14 - Prob. 11ECh. 14 - Prob. 12ECh. 14 - Prob. 13ECh. 14 - Prob. 14ECh. 14 -
EXERCISE 13-15 Internal Rateof Return and Net...Ch. 14 - Prob. 16PCh. 14 - PROBLEM 13-17 Net Present Value Analysis; Internal...Ch. 14 - Prob. 18PCh. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Prob. 21PCh. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24PCh. 14 - Prob. 25PCh. 14 - Prob. 26PCh. 14 -
PROBLEM 13-27 Net Present Value Analysis...Ch. 14 - Prob. 28PCh. 14 - Prob. 29PCh. 14 - Prob. 30PCh. 14 - Prob. 31CCh. 14 - Prob. 32C
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- **Solve in Excel** The Chief Financial Officer of Eaton Medical Devices has determined that the firm’s capital investment budget will be $5,000,000 for the upcoming year. Unfortunately, this amount is not sufficient to cover all of the positive NPV projects available to the firm. Project Cost NPV A $1,061,191 $122,737 B 561,758 58,102 C 1,647,849 280,660 D 1,026,020 89,365 E 191,870 17,568 F 1,333,625 76,960 G 3,102,642 123,240 H 275,568 79,367 I 2,044,070 60,506 J 1,017,567 56,690 You have been asked to choose which investments should be made. Using the Solver, determine which of the above projects should be included in the budget if the firm’s goal is to maximize shareholder wealth (Note: Set the Solver to use the Simplex LP method, and turn off the Ignore Integer Constraints setting.)arrow_forward15. The manager of the Cement Division expects the following results in 2022: Sales Variable Costs (60%) Contribution Margin P 49.600,00O 29, 760,000 19,840.000 Fixed Costs Profit P 7.840,000 The Division's investments are as follows: Plant equipment Working Capital ROI P 19,510.000 P 14.880.00O 22.8% The division has a target ROI of 30 percent, and the rmanager has asked you to determine how much sales volume the division would need in order to realize that. He states that the sales mix is relatively constant so variable costs should be close to 60 percent of sales, fixed costs and plant and equipment should remain constant, and working capital should vary closely with sales in the percentage reflected above. 15. The peso sales that the division needs in order to realize the 30 percen ROI target is: O a. P 19,829,032 O b. P 57,590,322 O c. P 44,373,871 O d. P 59,510,000arrow_forwardComprehensive Problem Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 18% each of the last three years. He has computed the cost and revenue estimates for each product as follows: The company’s discount rate is 16%. Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. 3. Calculate the internal rate of return for each product. 4. Calculate the project profitability index for each product. 5. Calculate the simple rate of return for each product. 6. Which of the two products should Lou’s division pursue? Why?arrow_forward
- Exercise 13-9 Net Present Value Analysis and Simple Rate of Return [LO13-2, LO13-6] Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $4,140,000 investment in equipment with a useful life of five years and no salvage value. Holston Company’s discount rate is 16%. The project would provide net operating income each year for five years as follows: Sales $ 3,400,000 Variable expenses 1,450,000 Contribution margin 1,950,000 Fixed expenses: Advertising, salaries, and other fixedout-of-pocket costs $ 670,000 Depreciation 828,000 Total fixed expenses 1,498,000 Net operating income $ 452,000 Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount…arrow_forwardPlease answer parts 1,2,3. Problem 12-23 (Algo) Comprehensive Problem [LO12-1, LO12-2, LO12-3, LO12-5, LO12-6] Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division’s return on investment (ROI), which has exceeded 24% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Product A Product B Initial investment: Cost of equipment (zero salvage value) $ 326,050 $ 515,000 Annual revenues and costs: Sales revenues $ 370,000 $ 470,000 Variable expenses $ 168,000 $ 218,000 Depreciation expense $ 66,000 $ 103,000 Fixed out-of-pocket operating costs $ 82,000 $ 68,000 The company’s discount rate is 15%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor using tables. Required: 1. Calculate the payback period for each…arrow_forwardExercise 25.11 (Static) Using ROI and EVA for Performance Evaluation (LO25-2, LO25-3, LO25-4) Easton's Fabric Division has assets of $980,000, current liabilities of $130,000, and net operating income of $196,000. a. What is the Fabric Division's ROI? b. If the weighted-average cost of capital is 15 percent, what is the division's EVA? c. Which is the better technique to measure performance? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the Fabric Division's ROI? ROI RecuiccA Required B > 3 of 5arrow_forward
- Problem 9-34 Project Evaluation (LO4) The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1 2 3 4 Thereafter Unit Sales 25,000 45,000 29,000 5,000 0 It is expected that net working capital will amount to 20% of sales in the following year. For example, the store will need an initial (Year O) investment in working capital of .20 × 25,000 × $40 = $200,000. Plant and equipment necessary to establish the giftware business will require an additional investment of $275,000. This investment will depreciate on the MACRS schedule over 3 years. After 4 years, the equipment will have an economic and book value of zero. The firm's tax rate is 30%. The discount rate is 20%. Use the MACRS depreciation schedule. a. What is the net present value of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. a. Net present value b. Increase in NPVarrow_forwardProblem 4 (ROI Calculations with Varying Assumptions) Knix Products is a division of Park Textiles, Inc. During the coming year, it expects to earn a net operating income of P310,000' based on sales of P3.45million; without any new investments, the division will have average net operating assets of P3 million. The division is considering a capital investment project – adding knitting machines to produce gaiters – that requires an additional investment of P600,000 and increases net operating income by P57,500 (sales would increase by P575,000). If made, the investment would increase beginning net operating assets by P600,000 and ending net operating assets by P400,000. Assume that the minimum rate of return required by the company is 7 percent. Required: 1. Compute the ROI for the division without the investment. 2. Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed in Requirement 1. 3. Compute…arrow_forwardQUESTION 1: Weighted Average Cost of Capital & Capital Budgeting Universal Electricals Limited (UEL) is a large, rapidly growing wholesaler of consumer electrical products. The company's main product lines are kitchen appliances and power tools. The senior management team, including the chief financial offer, oversees the budgeting process and recognises the importance of capital budgeting for planning and control. The company plans a new eight-year project to manufacture Fridge Freezers. For that, the company will build a new manufacturing plant on the land the company had bought five years ago for $9.25 million. The land is currently valued at $14.75 million. The management estimates the land can be sold for $18.25 million after taxes in eight years. The Plant for the project will cost $185 million to build, and the company is expecting a four-year payback period for the entire project. The manufacturing plant has a ten-year tax life, and the company uses the Diminishing value method…arrow_forward
- Case Study 3 Constructed Response Answer Hocus Pocus Company wants to increase sales by adding a new product line. The company is considering three different projects. However, its capital budget is limited to $1,500,000. In addition, the company requires a rate of return of 10%. The information concerning the three product lines is given below. Net Initial Investment Budgeted Income Statement for the next five years: Sales Cost of Goods Sold Gross Margin Marketing and Administrative Expenses Net Income* Broomsticks $1,170,000 $500,000 80,000 420,000 100,000 ? Magic Wands $983,000 *Assume all amounts stated on the budgeted income statement are cash items. $450,000 50,000 400,000 130,000 ? Crystal Balls $2,210,000 Required a) Determine the net present value for each project assuming all cash flows cease after five years. $650,000 32,000 618,000 22,000 ?arrow_forwardProblem 1 Ziege Systems is considering the following independent projects for the next year. REQUIRED RATE OF INVESTMENT RETURN $4 million 14.0% $5 million 11.5 $3 million 9.5 9.0 12.5 12.5 7.0 11.5 PROJECT A B C D EFGH H $2 million $6 million $5 million $6 million $3 million RISK High High Low Average High Average Low Low The company estimates that its WACC is currently 10%. The company adjusts for risk by adding 2% for WACC for high-risk projects and subtracting 2 % from the WACC (discount rate) for low-risk projects. a. Which projects should Ziege accept if it faces no capital constraints ? b. If Ziege only has the ability to invest a total of $13 million, which projects should it accept?arrow_forwardProblem 7-23 (Algo) Comprehensive Problem [LO7-1, LO7-2, LO7-3, LO7-5, LO7-6] Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five- year period. His annual pay raises are determined by his division's return on investment (ROI), which has exceeded 22% each of the last three years. He has computed the cost and revenue estimates for each product as follows: Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs Product A $ 380,000 $ 410,000 $ 186,000 $ 76,000 $89,000 Required: 1. Calculate the payback period for each product. 2. Calculate the net present value for each product. 3. Calculate the internal rate of return for each product. Product B The company's discount rate is 20%. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor using tables. 4.…arrow_forward
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