Myaccountinglab With Pearson Etext -- Access Card -- For Horngren's Accounting, The Managerial Chapters
12th Edition
ISBN: 9780134490663
Author: MILLER-NOBLES, Tracie L., Mattison, Brenda L., Matsumura, Ella Mae
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 26, Problem P26.32APGA
Using payback, ARP, and
Learning Objectives 2, 4
1. Refurbish $19,810 NPV; Purchase 2.7 years payback
Henderson Manufacturing, Inc. has a manufacturing machine that needs attention The company is considering two options. Option 1 is to refurbish the current machine at a cost of $1,200,000. If refurbished, Henderson expects the machine to last another eight years and then have no residual value. Option 2 is to replace the machine at a cost of $4,600,000. A new machine would last 10 years and have no residual value Henderson expects the following net
| Year | Refurbish Current Machine | Purchase New Machine |
| 1 | $ 350,000 |
$ 3,780,000 |
| 2 | 340,000 | 510,000 |
| 3 | 270,000 | 440,000 |
| 4 | 200,000 | 370,000 |
| 5 | 130,000 | 300,000 |
| 6 | 130,000 | 300,000 |
| 7 | 130,000 | 300,000 |
| 8 | 130,000 | 300,000 |
| 9 | 300,000 | |
| 10 | 300,000 | |
| Total | $ 1,680,000 | $ 6,900,000 |
Henderson uses straight-line
Requirements
- Compute the payback, the ARR,the NPV, and the profitability index of these two options
- Which option should Henderson choose?Why?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
MAIN PROJECT
Szabist University is considering investing in an online book ordering and information service, which will be managed by 2 employees. The following estimates relate to the costs of starting the service and the subsequent revenues from it.
The initial investment needed to start the service, including the installation of additional phone lines and computer equipment, will be $1,000,000. These investments are expected to have a life of 4 years with 0 salvage value.The investments will be depreciated straight line over the four-year life.The revenues in the first year are expected to be $1500,000, growing 20% in year 2, and 10% in the two years following.The salaries and other benefits for the employees are estimated to be $150,000 in year 1, and grow 10% a year for the following three years.The cost of the books is assumed to be “0.60” of the revenues in each of the four years.The non-cash working capital, which includes the inventory of books needed for the service and the…
Learning Objective 1
A machine with a book value of $80,000 has an estimated five-year life. A proposal is offered to sell the old machine for $50,500 and
replace it with a new machine at a cost of $75,000. The new machine has a five-year life with no residual value. The new machine would
reduce annual direct labor costs from $11,200 to $7,400.
a. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine
(Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Differential Analysis
Continue Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
April 11
Revenues:
Proceeds from sale of old machine $
Costs:
Purchase price
Direct labor (5 years)
Replace
Old
Machine
Machine
(Alternative 1) (Alternative 2)
Profit (Loss)
Continue
with Old
0
0 ✓
-51,500 X
-51,500 X
40,500 X
-67,000 X
-48,500 X
-75,000 X
Differential
Effects
(Alternative 2)
40,500 X
-67,000 X
3,000 X
-23,500 X…
MAIN PROJECT
Iqra University is considering investing in an online book ordering and information service, which will be managed by 2 employees. The following estimates relate to the costs of starting the service and the subsequent revenues from it.
The initial investment needed to start the service, including the installation of additional phone lines and computer equipment, will be $1,000,000. These investments are expected to have a life of 4 years with 0 salvage value.The investments will be depreciated straight line over the four-year life.The revenues in the first year are expected to be $1500,000, growing 20% in year 2, and 10% in the two years following.The salaries and other benefits for the employees are estimated to be $150,000 in year 1, and grow 10% a year for the following three years.The cost of the books is assumed to be “0.60” of the revenues in each of the four years.The non-cash working capital, which includes the inventory of books needed for the service and the…
Chapter 26 Solutions
Myaccountinglab With Pearson Etext -- Access Card -- For Horngren's Accounting, The Managerial Chapters
Ch. 26 - Prob. 1QCCh. 26 - Prob. 2QCCh. 26 - Prob. 3QCCh. 26 - Prob. 4QCCh. 26 - Prob. 5QCCh. 26 - Prob. 6QCCh. 26 - Prob. 7QCCh. 26 - The IRR is Learning Objective 4 the interest rate...Ch. 26 - Prob. 9QCCh. 26 - Ian Corp, is considering two expansion projects....
Ch. 26 - Prob. 1RQCh. 26 - Describe the capital budgeting process.Ch. 26 - Prob. 3RQCh. 26 - Prob. 4RQCh. 26 - Prob. 5RQCh. 26 - Prob. 6RQCh. 26 - What is the payback method of analyzing capital...Ch. 26 - Prob. 8RQCh. 26 - Prob. 9RQCh. 26 - What is the decision rule for payback?Ch. 26 - Prob. 11RQCh. 26 - What is the accounting rate of return?Ch. 26 - How is ARR calculated?Ch. 26 - Prob. 14RQCh. 26 - Prob. 15RQCh. 26 - What is an annuity? How does it differ from a lump...Ch. 26 - Prob. 17RQCh. 26 - Prob. 18RQCh. 26 - Prob. 19RQCh. 26 - Prob. 20RQCh. 26 - Prob. 21RQCh. 26 - Prob. 22RQCh. 26 - Prob. 23RQCh. 26 - Prob. 24RQCh. 26 - Prob. 25RQCh. 26 - Prob. 26RQCh. 26 - Prob. 27RQCh. 26 - Prob. 28RQCh. 26 - Prob. 29RQCh. 26 - Prob. 30RQCh. 26 - Prob. S26.1SECh. 26 - Prob. S26.2SECh. 26 - Prob. S26.3SECh. 26 - Prob. S26.4SECh. 26 - Prob. S26.5SECh. 26 - Prob. S26.6SECh. 26 - Prob. S26.7SECh. 26 - Using the payback and ARR methods to make capital...Ch. 26 - Prob. S26.9SECh. 26 - Prob. S26.10SECh. 26 - Prob. S26.11SECh. 26 - Prob. S26.12SECh. 26 - Prob. S26.13SECh. 26 - Prob. S26.14SECh. 26 - Prob. S26.15SECh. 26 - Prob. E26.16ECh. 26 - Prob. E26.17ECh. 26 - Prob. E26.18ECh. 26 - Prob. E26.19ECh. 26 - Prob. E26.20ECh. 26 - Using ARE to make capital investment decisions...Ch. 26 - Prob. E26.22ECh. 26 - Prob. E26.23ECh. 26 - Prob. E26.24ECh. 26 - Prob. E26.25ECh. 26 - Prob. E26.26ECh. 26 - Prob. E26.27ECh. 26 - Prob. E26.28ECh. 26 - Prob. P26.29APGACh. 26 - Prob. P26.30APGACh. 26 - Using payback, APR, NPV, IPP, and profitability...Ch. 26 - Using payback, ARP, and NPV with unequal cash...Ch. 26 - Prob. P26.33APGACh. 26 - Prob. P26.34BPGBCh. 26 - Prob. P26.35BPGBCh. 26 - Using payback, APR, NPV, IRR, and profitability...Ch. 26 - Prob. P26.37BPGBCh. 26 - Prob. P26.38BPGBCh. 26 - Using Excel for capital budgeting calculations...Ch. 26 - Prob. P26.40CPCh. 26 - Prob. 1CPCh. 26 - Prob. 2CPCh. 26 - Prob. 3CPCh. 26 - Prob. 4CPCh. 26 - Prob. 26.1TIATCCh. 26 - Prob. 26.1EICh. 26 - Prob. 26.1FC
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
- MAIN PROJECT Iqra University is considering investing in an online book ordering and information service, which will be managed by 2 employees. The following estimates relate to the costs of starting the service and the subsequent revenues from it. The initial investment needed to start the service, including the installation of additional phone lines and computer equipment, will be $1,000,000. These investments are expected to have a life of 4 years with 0 salvage value. The investments will be depreciated straight line over the four-year life. The revenues in the first year are expected to be $1500,000, growing 20% in year 2, and 10% in the two years following. The salaries and other benefits for the employees are estimated to be $150,000 in year 1, and grow 10% a year for the following three years. The cost of the books is assumed to be “0.60” of the revenues in each of the four years. The non-cash working capital, which includes the inventory of books needed for the service and…arrow_forwardCurrent Attempt in Progress The Management of Carla Vista Manufacturing Company is evaluating two forklift systems to use in its plant that produces the towers for a windmill power farm. The costs and the cash flows from these systems are shown below. The company uses a 10 percent discount rate for all projects. Year 0 D Year 1 Year 2 Year 3 Otis Forklifts $-3,138,450 $974,225 $1,362,886 $2,112,497 Craigmore Forklifts $-4,128,410 $876,236 $1,766,225 $2,853,110 NPV Otis forklift $460,711 Craigmore Forklifts $271,442 Compute the IRR for each of the two systems. (Round intermediate calculation to O decimal places, e.g. 1,525 and final answers to 2 decimal places, e.g. 15.10%.) Otis forklift Craigmore Forklifts IRR % % Is the investment decision different from the one determined by NPV? The investment decision is eTextbook and Media from the one determined by NPV. Save for Later Using multiple attempts will impact your score. 20% score reduction after attempt 2 Q Search Attempts: 0 of 3…arrow_forwardQuestion Content Area Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000, and its remaining useful life is five years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 with annual operating costs of $1,500. The new machine has an estimated useful life of five years. Question Content Area Prepare a differential analysis. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential AnalysisContinue with (Alternative 1) or Replace (Alternative 2) Old Machineblank Line Item Description Continue withOld Machine(Alternative 1) Replace OldMachine(Alternative 2) DifferentialEffects(Alternative 2) Revenues: blank blank blank Proceeds from sale of old machine $Proceeds from sale of old machine $Proceeds from sale of old machine $Proceeds from sale of old machine Costs: Purchase price Purchase price…arrow_forward
- A bookstore is planning to purchase an automated inventory/remote marketing system, which includes an upgrade to a more sophisticated cash register system. The package has an initial investment cost of $360,000. It is expected to generate $144,000 of annual cash flows, reduce costs and provide incremental cash revenues of $326,000, and incur incremental cash expenses of $200,000 annually. What is the payback period and accounting rate of return (ARR)?arrow_forwardSTUDENT ASSESSMENT QUESTION 1. A manufacturer of toilet flush valves wants to have P15,000,000 available 10 years from now so that a new product line can be initiated. If the company plans to deposit money each quarter from now, how much will it have to deposit each year if money is worth 7% compounded quarterly in order to have it available immediately at the end of 10 years? Less than P182,000 P182,500 P191,300 Over P262,000 (a) (b) (d) 2. Rubbermaid Plastic Corp. invested P10,000,000 in manufacturing equipment for producing small wastebaskets. If the company uses an interest rate of 5% compounded monthly, how much money should it have to earn each year to recover the investment in 7 years? (a) (b) (c) P2,003,600.87 P2,530,800.36 P1,735,721.38 Over P3,000,000 3. A young engineering student has just graduated in college. He is able to obtain his first job and desires to establish a retirement fund. At the end of every year, he deposits P5,000. Money is worth 12% compounded annually.…arrow_forwardMAIN PROJECT Texas University is considering investing in an online book ordering and information service, which will be managed by 2 employees. The following estimates relate to the costs of starting the service and the subsequent revenues from it. The initial investment needed to start the service, including the installation of additional phone lines and computer equipment, will be $1,000,000. These investments are expected to have a life of 4 years with 0 salvage value.The investments will be depreciated straight line over the four-year life.The revenues in the first year are expected to be $1500,000, growing 20% in year 2, and 10% in the two years following.The salaries and other benefits for the employees are estimated to be $150,000 in year 1, and grow 10% a year for the following three years.The cost of the books is assumed to be “0.60” of the revenues in each of the four years.The non-cash working capital, which includes the inventory of books needed for the service and the…arrow_forward
- Subject: Engineering Economics Lesson: Capitalized Cost A machine is bought at P 1,000,000. Yearly, it is maintained at a cost of about P 250,000. It can be sold at a value of P 400,000.00 after its 10-year life. What equivalent yearly sales should be made from the machine to redeem its usefulness. Money is worth 6% (Hint: Capital cost= 0).arrow_forward1. Use the information below for the next two questions. Leaky Pipe Inc. is considering a new machine for its largest product line. The cash flows Lastalled Purchase Price S40, 000 Roduced Cost of Materials S 6,000 per year Labor Savings S9, 000 per year locrease in Working Capital $5, 000 (for Year 0 and I only) Depreciable Life (zero salvage value) 4 years Economic Life 8 years Required Return 12% Tax Rate 40% a . What is the NPV of this machine if it does not replace any other?. b. Suppose the machine replaces another machine with the following characteristics: Book Value of Old Machine $6.000 Market Value of Old Machine $4,000 Remaining Depreciable Life of Old Machine 6years Assume the old machine was not expected to have any salvage value and compute the NPV of the New Machine.arrow_forwardExplansion Project: ABC is planning to buy a new heavy duty printing machine. You were hired to assist KFUPM on this decision. So you gathered the following information. The new machine has a life of 3 years. New Machine: Life of machine: 3 years The cost of the new machine is SAR 1,134 The machine will increase the gross profit every year by SAR 314 The market value of the machine when sold at the end of its life is SAR 191 If replaced, then the net working capital (NOWC) will increase every year by SAR 22 ABC will recover all investments in working capital at the end of the new machine's life (after 3 years). WACC is 9.49% Tax rate is 40% ABC uses straight-line Depreciation. Calculate the follwoing: Notes: 1. Use 2 Decimalsarrow_forward
- Saved mework 1 Avignon Restaurant is considering the purchase of a $10,100 soufflé maker. The soufflé maker has an economic life of four years and will be fully depreciated by the straight-line method. The machine will produce 2,050 soufflés per year, with each costing $2.45 to make and priced at $5.30. Assume that the discount rate is 14 percent and the tax rate is 21 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Should the company make the purchase? O Yes O Noarrow_forwardQuestion #5: a. You have 2 investment choices. The Warlight machine costs $10,000 and has a salvage of $5,500 at the end of the second year. The Bridgedale machine costs $4,620 more than the Warlight but has a slightly better performance yield N Warlight Bridgedale 0 -$10,000 -$14,000 1 $6,000 $9,000 2 $5,500 $8,000 If your MARR is 18%, choose which program should be accepted using incremental investment analysis the following if (SHOW YOUR WORK BELOW): a. C. i* for the incremental investment = 13%, then the Bridgedale is preferred b. i* for the incremental investment = 25%, then the Bridgedale is preferred i* for the incremental investment = 21%, then the Bridgedale is preferred d. i* for the incremental investment = 13%, then the Warlight is preferred i* for the incremental investment = 25%, then the Warlight is preferred i* for the incremental investment = 21%, then the Warlight is preferred e. f.arrow_forwardQuestion 4: You have a opportunity to make a investment that has $10.000,000 landing, 1.500.000 machine, outsourcing 500.000 and finance cost 1.000.000. Machines have no scrap value at end of 4th year. You will pay interest payment at the end of 4rd year, that is $500.000. If you make this investment now, you will receive $4.500,000 one year from today, $3.000,000, $5.000,000 and $ 4.000,000 respectively. The appropriate discount rate for this investment is 14 percent. Tax rate is % 30. Should you make the investment? Why?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Profitability index; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Md5ocNqKHq8;License: Standard Youtube License