Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 16, Problem 37E
1.
To determine
Ascertain the payback period for the proposed investment.
2.
To determine
Calculate the accounting
3.
To determine
Calculate the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Metro 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 value
Required information
[The following information applies to the questions displayed below.]
Metro 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
4
5
Initial Cost
and Book Value
$345,000
230,000
138,000
69,000
23,000
0
Annual Net After-Tax
Cash Flows
$162,000
141,000
120,000
99,000
78,000
Annual
Net Income
$47,000
49,000
51,000
53,000
55,000
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.)
Required:
1. Compute the project's payback period. Assume that the cash flows in…
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 16 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Explain the following terms: recovery of...Ch. 16 - List and briefly explain two advantages that the...Ch. 16 - List and briefly explain four assumptions...Ch. 16 - Prob. 9RQCh. 16 - Prob. 10RQ
Ch. 16 - Give an example of a noncash expense. What impact...Ch. 16 - Prob. 12RQCh. 16 - What is a depreciation tax shield? Explain the...Ch. 16 - Prob. 14RQCh. 16 - Why is accelerated depreciation advantageous to a...Ch. 16 - Prob. 16RQCh. 16 - Why may the net-present-value and...Ch. 16 - Prob. 18RQCh. 16 - What is meant by the term payback period? How is...Ch. 16 - Prob. 20RQCh. 16 - How is an investment projects accounting rate of...Ch. 16 - Prob. 22RQCh. 16 - Prob. 23RQCh. 16 - Prob. 24ECh. 16 - Refer to the data given in the preceding exercise....Ch. 16 - Prob. 26ECh. 16 - Prob. 28ECh. 16 - Prob. 29ECh. 16 - Prob. 30ECh. 16 - Prob. 31ECh. 16 - Prob. 32ECh. 16 - Sharpe Machining Company purchased industrial...Ch. 16 - The owner of Atlantic City Confectionary is...Ch. 16 - The management of Niagra National Bank is...Ch. 16 - Allegience Insurance Companys management is...Ch. 16 - Prob. 37ECh. 16 - Prob. 38ECh. 16 - The states Secretary of Education is considering...Ch. 16 - The supervisor of the county Department of...Ch. 16 - Prob. 41PCh. 16 - Prob. 42PCh. 16 - Prob. 43PCh. 16 - Special People Industries (SPI) is a nonprofit...Ch. 16 - Washington Countys Board of Representatives is...Ch. 16 - Prob. 46PCh. 16 - Prob. 47PCh. 16 - Mind Challenge, Inc. publishes innovative science...Ch. 16 - Philadelphia Fastener Corporation manufactures...Ch. 16 - Prob. 50PCh. 16 - Prob. 51PCh. 16 - Prob. 52PCh. 16 - Prob. 53PCh. 16 - Prob. 54PCh. 16 - Prob. 55PCh. 16 - Prob. 56PCh. 16 - Pensacola Cablevision Company provides television...Ch. 16 - Pensacola Cablevision Company provides television...Ch. 16 - The board of education for the Central Catskill...Ch. 16 - Prob. 60C
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
- Drake Corporation is reviewing an investment proposal. The initial cost is $105,100. 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. Investment Proposal Year Book Value AnnualCash Flows AnnualNet Income 1 $69,600 $44,000 $8,500 2 41,900 39,500 11,800 3 21,600 36,000 15,700 4 8,300 31,000 17,700 5 0 22,915 14,615 Drake Corporation uses an 11% target rate of return for new investment proposals.Click here to view the factor table.(a)What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.) Cash…arrow_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_forward! Required information [The following information applies to the questions displayed below.] Metro 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 4 5 Initial Cost and Book Value $315,000 210,000 126,000 63,000 21,000 0 Annual Net After-Tax Cash Flows $138,000 119,000 100,000 81,000 62,000 3. Compute the proposal's net present value. Annual Net Income Management uses a 12 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.) Answer is complete but not entirely correct. Net present $ 70,475 X…arrow_forward
- 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…arrow_forwardDrake 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_forwardMountain Frost is considering a new project with an initial cost of $205,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The projected net income for each year is $20,000, $20,900, $24,600, and $16,900, respectively. What is the average accounting return? Please make sure its correctarrow_forward
- Assuming that you would like to buy an equipment for your small business. Using the information below, calculate the Rate of Return and the Pay Back Period for the investment. After presenting your calculations, explain why you think this will (or will not) be a good investment. Here are the numbers: Cost of the investment is $100,000 Estimated depreciable life of investment is 5 years Annual depreciated charge is $15,000 Estimated average profit over depreciable life is $10,000.arrow_forwardHypore Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $348,400. The annual cost savings if the new machine is acquired will be $80,000. The machine will have a 6-year life, at which time the terminal disposal value is expected to be zero. Hypore Park Department is assuming no tax consequences. What is the internal rate of return for Hypore Park Department? Question 6 options: 11% 9% 5% 10%arrow_forwardMountain Frost is considering a new project with an initial cost of $180,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The projected net income for each year is $19,500, $20,400, $24,600, and $16,400, respectively. What is the average accounting return?arrow_forward
- ou must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $157,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $86,000. The machine would require an $8,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $47,000 per year. The marginal tax rate is 25%, and the WACC is 9%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.arrow_forwardThe Parkview Hospital is considering the purchase of a new autoclave. This equipment will cost $161,000. This asset will be depreciated using an MACRS (GDS) recovery period of three years. What is the BV at the end of the second year? Click the icon to view the GDS Recovery Rates (r) for the 3-year property class. Choose the correct answer below. O A. The BV at the end of the second year is $51,520. O B. The BV at the end of the second year is $107,339. OC. The BV at the end of the second year is $35,774. O D. The BV at the end of the second year is $71,565.arrow_forwardYou must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $180,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $49,000. The equipment would require a $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $37,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. a. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. $ b. What are the project's annual cash flows in Years 1, 2, and 37 Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1: $ Year 2: $ Year 3: $ *arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License