15 May QuestionManagerial Accounting 1BFinancial and Managerial Accounting
Question
Managerial Accounting 1B
Financial and Managerial Accounting
Chapter 24
1.Exercise 24-1 Payback period computation; even cash flows L.O. P1
| Compute the payback period for each of these two separate investments: |
| a. | A new operating system for an existing machine is expected to cost $260,000 and have a useful life of five years. The system yields an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000.(Round your answer to 2 decimal places.) |
| Payback period |
| b. | A machine costs $190,000, has a $10,000 salvage value, is expected to last nine years, and will generate an after-tax income of $30,000 per year after straight-line depreciation.(Round your answer to 1 decimal place.) |
| Payback period |
2.
Exercise 24-2 Payback period computation; uneven cash flows L.O. P1
| Wenro Company is considering the purchase of an asset for $90,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. |
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total | |||||||||||||||||||
| Net cash flows | $ | 30,000 | $ | 20,000 | $ | 30,000 | $ | 60,000 | $ | 19,000 | $ | 159,000 | ||||||||||||
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| Compute the payback period for this investment. (Round your intermediate calculations to 3 decimal places and final answer to 1 decimal place.) |
| Payback period |
3.
Exercise 24-3 Payback period computation; declining-balance depreciation L.O. P1
| A machine can be purchased for $300,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double-declining balance depreciation is applied, using a 5-year life and a $50,000 salvage value. |
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||||||||||||||
| Net incomes | $ | 20,000 | $ | 50,000 | $ | 100,000 | $ | 75,000 | $ | 200,000 | ||||||||||
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| Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and final answer to 2 decimal places.) |
| Payback period |
4.
Exercise 24-4 Accounting rate of return L.O. P2
| A machine costs $500,000 and is expected to yield an after-tax net income of $15,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine’s accounting rate of return. (Omit the “%” sign in your response.) |
| Accounting rate of return |
5.
Exercise 24-6 Computing net present value L.O. P3
| K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. K2B Co. concludes that it must earn at least a 8% return on this investment. The company expects to sell 96,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. (UseTable B.3) |
| Sales | $ | 150,000 | |
| Costs | |||
| Materials, labor, and overhead (except depreciation) | 80,000 | ||
| Depreciation on new equipment | 20,000 | ||
| Selling and administrative expenses | 15,000 | ||
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| Total costs and expenses | 115,000 | ||
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| Pretax income | 35,000 | ||
| Income taxes (30%) | 10,500 | ||
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| Net income | $ | 24,500 | |
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| Compute the net present value of this investment. (Round “PV Factor” to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the “$” sign in your response.) |
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