Gen Combo Fundamentals Of Cost Accounting; Connect Access Card
6th Edition
ISBN: 9781260848700
Author: William N. Lanen Professor, Shannon Anderson Associate Professor, Michael W Maher
Publisher: McGraw-Hill Education
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Chapter 14, Problem 55P
To determine
Compute the EVA for the W Division for year 3.
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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)
$ 330,000
$ 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 product.
Product A (Years)
Product B (Years)
Payback Period
2. Calculate the net present value for…
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)
$
330,000
$
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%.
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.
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)
$
330,000
$
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%.
Required:
4. Calculate the project profitability index for each product.
5. Calculate the simple rate of return for each product.
Chapter 14 Solutions
Gen Combo Fundamentals Of Cost Accounting; Connect Access Card
Ch. 14 - What are the advantages of divisional income as a...Ch. 14 - How is divisional income like income computed for...Ch. 14 - How is return on investment (ROI) computed?Ch. 14 - What are the advantages of using an ROI-type...Ch. 14 - How can ratios, such as ROI, be used for control...Ch. 14 - How does residual income differ from ROI?Ch. 14 - How does EVA differ from residual income?Ch. 14 - What impact does the use of gross book value or...Ch. 14 - What are the dangers of using only business unit...Ch. 14 - A company prepares the master budget by taking...
Ch. 14 - Prob. 11CADQCh. 14 - What problems might there be if the same methods...Ch. 14 - Prob. 13CADQCh. 14 - The chapter identified some problems with ROI-type...Ch. 14 - Failure to invest in projects is not a problem...Ch. 14 - How would you respond to the following comment?...Ch. 14 - Prob. 17CADQCh. 14 - Prob. 18CADQCh. 14 - Prob. 19CADQCh. 14 - Prob. 20CADQCh. 14 - Prob. 21CADQCh. 14 - Compute Divisional Income Arlington Clothing,...Ch. 14 - Compute Divisional Income Refer to Exercise 14-22....Ch. 14 - Computing Divisional Income: Incomplete...Ch. 14 - Compute RI and ROI The Campus Division of...Ch. 14 - Prob. 26ECh. 14 - Compare Alternative Measures of Division...Ch. 14 - Comparing Business Units Using ROI Back Mountain...Ch. 14 - Comparing Business Units Using Residual Income...Ch. 14 - Prob. 30ECh. 14 - Universal Electronics, Inc. (UEI), which started...Ch. 14 - Comparing Business Units Using Residual...Ch. 14 - Comparing Business Units Using Economic Value...Ch. 14 - Impact of New Asset on Performance Measures The...Ch. 14 - Refer to the data in Exercise 14–34. The division...Ch. 14 - Refer to the information in Exercises 14–34 and...Ch. 14 - Impact of an Asset Disposal on Performance...Ch. 14 - Impact of an Asset Disposal on Performance...Ch. 14 - Compare Historical Cost, Net Book Value to Gross...Ch. 14 - Prob. 40ECh. 14 - Prob. 41ECh. 14 - Effects of Current Cost on Performance...Ch. 14 - Comparing Business Units Using Divisional Income,...Ch. 14 - Comparing Business Units Using Economic Value...Ch. 14 - Prob. 45PCh. 14 - Equipment Replacement and Performance Measures...Ch. 14 - Prob. 47PCh. 14 - Prob. 48PCh. 14 - Prob. 49PCh. 14 - Prob. 50PCh. 14 - Prob. 51PCh. 14 - Evaluate Performance Evaluation System: Behavioral...Ch. 14 - ROI, EVA, and Different Asset Bases Hys is a...Ch. 14 - Economic Value Added Bisbee Health Products...Ch. 14 - Prob. 55PCh. 14 - Prob. 56PCh. 14 - Refer to the information in Exercise 14-39. Assume...Ch. 14 - Refer to the information in Exercise 14-42. Assume...
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