Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
16th Edition
ISBN: 9780134642468
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 21, Problem 21.26E
Comparison of projects, no income taxes. (CMA, adapted) New Pharm Corporation is a rapidly growing biotech company that has a required
- Plan I: Payment of $175,000 at the time of signing the contract and $4,700,000 upon completion of the building. The end of the second year is the completion date.
- Plan II: Payment of $1,625,000 at the time of signing the contract and $1,625,000 at the end of each of the two succeeding years.
- Plan III: Payment of $325,000 at the time of signing the contract and $1,500,000 at the end of each of the three succeeding years.
- 1. Using the
net present value method, calculate the comparative cost of each of the three payment plans being considered by New Pharm.Required
- 2. Which payment plan should New Pharm choose? Explain.
- 3. Discuss the financial factors, other than the cost of the plan, and the nonfinancial factors that should be considered in selecting an appropriate payment plan.
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New Pharm Corporation is a rapidlygrowing biotech company that has a required rate of return of 14%. It plans to build a new facility in SantaClara County. The building will take 2 years to complete. The building contractor offered New Pharm achoice of three payment plans, as follows:
■ Plan I: Payment of $175,000 at the time of signing the contract and $4,700,000 upon completion of thebuilding. The end of the second year is the completion date.
■ Plan II: Payment of $1,625,000 at the time of signing the contract and $1,625,000 at the end of each ofthe two succeeding years.
■ Plan III: Payment of $325,000 at the time of signing the contract and $1,500,000 at the end of each of thethree succeeding years.
Q. Which payment plan should New Pharm choose? Explain.
New Pharm Corporation is a rapidlygrowing biotech company that has a required rate of return of 14%. It plans to build a new facility in SantaClara County. The building will take 2 years to complete. The building contractor offered New Pharm achoice of three payment plans, as follows:
■ Plan I: Payment of $175,000 at the time of signing the contract and $4,700,000 upon completion of thebuilding. The end of the second year is the completion date.
■ Plan II: Payment of $1,625,000 at the time of signing the contract and $1,625,000 at the end of each ofthe two succeeding years.
■ Plan III: Payment of $325,000 at the time of signing the contract and $1,500,000 at the end of each of thethree succeeding years.
Q. Using the net present value method, calculate the comparative cost of each of the three payment plansbeing considered by New Pharm.
New Pharm Corporation is a rapidlygrowing biotech company that has a required rate of return of 14%. It plans to build a new facility in SantaClara County. The building will take 2 years to complete. The building contractor offered New Pharm achoice of three payment plans, as follows:
■ Plan I: Payment of $175,000 at the time of signing the contract and $4,700,000 upon completion of thebuilding. The end of the second year is the completion date.
■ Plan II: Payment of $1,625,000 at the time of signing the contract and $1,625,000 at the end of each ofthe two succeeding years.
■ Plan III: Payment of $325,000 at the time of signing the contract and $1,500,000 at the end of each of thethree succeeding years.
Q. Discuss the financial factors, other than the cost of the plan, and the nonfinancial factors that shouldbe considered in selecting an appropriate payment plan.
Chapter 21 Solutions
Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
Ch. 21 - Capital budgeting has the same focus as accrual...Ch. 21 - List and briefly describe each of the five stages...Ch. 21 - Prob. 21.3QCh. 21 - Only quantitative outcomes are relevant in capital...Ch. 21 - How can sensitivity analysis be incorporated in...Ch. 21 - Prob. 21.6QCh. 21 - Describe the accrual accounting rate-of-return...Ch. 21 - Prob. 21.8QCh. 21 - Lets be more practical. DCF is not the gospel....Ch. 21 - All overhead costs are relevant in NPV analysis....
Ch. 21 - Prob. 21.11QCh. 21 - Distinguish different categories of cash flows to...Ch. 21 - Prob. 21.13QCh. 21 - How can capital budgeting tools assist in...Ch. 21 - Distinguish the nominal rate of return from the...Ch. 21 - A company should accept for investment all...Ch. 21 - Prob. 21.17MCQCh. 21 - Which of the following statements is true if the...Ch. 21 - Prob. 21.19MCQCh. 21 - Nicks Enterprises has purchased a new machine tool...Ch. 21 - Prob. 21.21ECh. 21 - Capital budgeting methods, no income taxes. Yummy...Ch. 21 - Capital budgeting methods, no income taxes. City...Ch. 21 - Prob. 21.24ECh. 21 - Capital budgeting with uneven cash flows, no...Ch. 21 - Comparison of projects, no income taxes. (CMA,...Ch. 21 - Payback and NPV methods, no income taxes. (CMA,...Ch. 21 - DCF, accrual accounting rate of return, working...Ch. 21 - Prob. 21.29ECh. 21 - Prob. 21.30ECh. 21 - Project choice, taxes. Klein Dermatology is...Ch. 21 - Prob. 21.32ECh. 21 - Selling a plant, income taxes. (CMA, adapted) The...Ch. 21 - Prob. 21.36PCh. 21 - NPV and AARR, goal-congruence issues. Liam...Ch. 21 - Payback methods, even and uneven cash flows. Sage...Ch. 21 - Replacement of a machine, income taxes,...Ch. 21 - Recognizing cash flows for capital investment...Ch. 21 - NPV, inflation and taxes. Fancy Foods is...Ch. 21 - NPV of information system, income taxes. Saina...
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