FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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- Reyarrow_forwardThurston Petroleum is considering a new project that complements its existing business. The machine required for the project costs $4.35 million. The marketing department predicts that sales related to the project will be $2.45 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales. The company also needs to add net working capital of $175,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The tax rate is 25 percent and the required return for the project is 10 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)arrow_forwardMedavoy Company is considering a new project that complements its existing business. The machine required for the project costs $4.5 million. The marketing department predicts that sales related to the project will be $2.67 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $190,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 23 percent and the required return for the project is 13 percent. What is the value of the NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)arrow_forward
- Beacon Company is considering automating its production facility. The initial investment in automation would be $9.23 million, and the equipment has a useful life of 8 years with a residual value of $1,070,000. The company will use straight-line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Current (no automation) 80,000 units Proposed (automation) 120,000 units Per Unit Total Per Unit Total Sales revenue $ 91 $ ? $ 91 $ ? Variable costs Direct materials $ 17 $ 17 Direct labor 30? Variable manufacturing overhead 9 9 Total variable manufacturing costs 56? Contribution margin $ 35 ? $ 41 ? Fixed manufacturing costs 1,140,000 2,260,000 Net operating income ? ? Required: 3. Determine the project's payback period.arrow_forwardBridgeport Industries is considering the purchase of new equipment costing $1,280,000 to replace existing equipment that will be sold for $194,000. The new equipment is expected to have a $220,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 32,800 units annually at a sales price of $29 per unit. Those units will have a variable cost of $15 per unit. The company will also incur an additional $86,000 in annual fixed costs. Identify the amount and timing of all cash flows related to the acquisition of the new equipment. (Enter negative amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Cash Flow Timing Amount Purchase of new equipment $4 Salvage of old equipment Sales revenue Variable costs Additional fixed costs Salvage of new equipment >arrow_forwardBlossom Company has a factory machine with a book value of $85,000 and a remaining useful life of 5 years. It can be sold for $25,000. A new machine is available at a cost of $345,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $550,000 to $450,000. Prepare an analysis showing whether the old machine should be retained or replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Equipment Variable manufacturing costs $ Replace Equipment $ Net Income Increase (Decrease) New machine cost Sell old machine Total $ The old factory machine should be tA $ $arrow_forward
- Beacon Company is considering automating its production facility. The initial investment in automation would be $7.52 million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Required: 1-a. Complete the following table showing the totals. Current (no automation) 81,000 Proposed (automation) 128,000 units units Per Unit $94 $ 17 30 9 56 $38 Total $ ? ? 1,240,000 ? Per Unit $94 $ 17 ? 9 ? $44 Total $ ? ? 2,200,000 ?arrow_forwardA company is considering replacing an old piece of machinery, which cost $597,100 and has $352,000 of accumulated depreciation to date, with a new machine that has a purchase price of $484,900. The old machine could be sold for $64,000. The annual variable production costs associated with the old machine are estimated to be $155,100 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,700 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffecton Income(Alternative 2) Revenues:…arrow_forwardNeed Help witharrow_forward
- A company is planning to purchase a machine that will cost $34,800, will have a six-year life, and will have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? Sales Costs: Manufacturing Depreciation on machine Selling and administrative expenses Income Multiple Choice O O O 3 5.80% 5.17% 50.00% 17.24%. 33.33%. E $ 105,000 $ 51,200 5,800 45,000 (102,000) $ 3,000 80 F3 a F4 F5 F6 54 85 R D F ןד C V 6 & 7 T Y DII F7 F8 F9 F10 U 8 9 0 0 G H J K L B N M Parrow_forwardWhat is the reduction in Variable manufacturing costarrow_forwardA company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation to date, with a new machine that has a purchase price of $107,900. The old machine could be sold for $90,100. The annual variable production costs associated with the old machine are estimated to be $11,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $8,000 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffects(Alternative 2) Revenues: Proceeds from sale…arrow_forward
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