HORNGREN COST ACCT NON-MAJORS W/ACCESS
17th Edition
ISBN: 9781323703748
Author: Datar
Publisher: Pearson Custom Publishing
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Chapter 21, Problem 21.32E
1.
To determine
NPV is a technique used in capital budgeting to see the project is profitable for the company or not. The acceptance of the project is based on the result of NPV as if it is positive then it should be selected and in the case of negative NPV it should be rejected.
To compute: The expected net cash flow from S and C for next three years.
2.
To determine
To compute: The NPV of S and C.
3.
To determine
To compute: The new NPV for C after providing 10% reduction in price. Explain other factors that should consider before making final judgment.
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Ortel Telecom sells telecommunication products and services to a varietyof small businesses. Two of Ortel’s key clients are Square and Cloudburst, both fast-growing technology start-ups located in New York City. Ortel has compiled information regarding its transactions with Square and Cloudburst for 2017, as well as its expectations regarding their interactions over the next3 years:
Ortel’s transactions with Square and Cloudburst are in cash. Assume that they occur at year-end. Ortel isheadquartered in the Cayman Islands and pays no income taxes. The owners of Ortel insist on a requiredrate of return of 12%.Q. Based on the net present value from cash flows over the next 3 years, is Cloudburst or Square a morevaluable customer for Ortel?
Ortel Telecom sells telecommunication products and services to a varietyof small businesses. Two of Ortel’s key clients are Square and Cloudburst, both fast-growing technology start-ups located in New York City. Ortel has compiled information regarding its transactions with Square and Cloudburst for 2017, as well as its expectations regarding their interactions over the next3 years:
Ortel’s transactions with Square and Cloudburst are in cash. Assume that they occur at year-end. Ortel isheadquartered in the Cayman Islands and pays no income taxes. The owners of Ortel insist on a requiredrate of return of 12%.Q. Cloudburst threatens to switch to another supplier unless Ortel gives a 10% price reduction on all salesstarting in 2018. Calculate the 3-year NPV of Cloudburst after incorporating the 10% discount. ShouldOrtel continue to transact with Cloudburst? What other factors should it consider before making itsfinal decision?
. Ortel Telecom sells telecommunication products and services to a variety of small businesses. Two of Ortel’s key clients are Square and Cloudburst, both fast-growing technology start-ups located in New York City. Ortel has compiled information regarding its transactions with Square and Cloudburst for 2017, as well as its expectations regarding their interactions over the next 3 years: (in pic)
Ortel’s transactions with Square and Cloudburst are in cash. Assume that they occur at year-end. Ortel is headquartered in the Cayman Islands and pays no income taxes. The owners of Ortel insist on a required rate of return of 12%.
Q. Based on the net present value from cash flows over the next 3 years, is Cloudburst or Square a more valuable customer for Ortel?
Chapter 21 Solutions
HORNGREN COST ACCT NON-MAJORS W/ACCESS
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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