Bramble Corp. is planning to replace an old asset with new equipment that will operate more efficiently. The following amounts may be relevant to this analysis. Cost of old asset Book value of old asset Selling price of old asset Purchase price of new replacement asset Estimated salvage value of new asset Estimated useful life of new asset Estimated annual net operating cash inflows Discount rate Tax rate Cost of old asset Book value of old asset Determine which amounts listed are relevant cash flows for Bramble Corp, as it considers this asset sale and replacement Selling price of old asset Purchase price of new replacement asset Estimated salvage value of new asset Estimated annual net operating cash inflows $12.900 $1,800 $1,800 $20,400 $2,100 NPV S 5 years $3,100 year for 5 years 342181 10% 20% Irrelevant V Inelevet V Relevant Relevant Relevant Then, find the NPV of the new investment. (Round present value factor calculations to 5 decimal places, ea 1.25124 and final answer to 2 decimal places eg 5,125.36. Enter negative amounts using either a negative sian preceding the number, eg-5,125.36 or parentheses, es (5,125,36) Click here to view the factor table Relevant

Bramble Corp. is planning to replace an old asset with new equipment that will operate more efficiently. The following amounts may be relevant to this analysis. Cost of old asset Book value of old asset Selling price of old asset Purchase price of new replacement asset Estimated salvage value of new asset Estimated useful life of new asset Estimated annual net operating cash inflows Discount rate Tax rate Cost of old asset Book value of old asset Determine which amounts listed are relevant cash flows for Bramble Corp, as it considers this asset sale and replacement Selling price of old asset Purchase price of new replacement asset Estimated salvage value of new asset Estimated annual net operating cash inflows $12.900 $1,800 $1,800 $20,400 $2,100 NPV S 5 years $3,100 year for 5 years 342181 10% 20% Irrelevant V Inelevet V Relevant Relevant Relevant Then, find the NPV of the new investment. (Round present value factor calculations to 5 decimal places, ea 1.25124 and final answer to 2 decimal places eg 5,125.36. Enter negative amounts using either a negative sian preceding the number, eg-5,125.36 or parentheses, es (5,125,36) Click here to view the factor table Relevant

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1MAD: San Lucas Corporation is considering investment in robotic machinery based upon the following...

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Which of the following research and development costs should always be capitalized? a. costs of intangibles purchased from othersb. costs of materials, equipment, and intangibles with alternative future uses purchased fromothersc. costs of equipment with an expected life greater than three yearsd. costs of contract services purchased from others
A characteristic of the payback method is that it: (See your Chapter 25 notes, page 9) Uses accrual accounting inflows in the numerator of the calculation Uses the estimated expected useful life of the asset in the denominator of the calculation Incorporates cash flows received after the payback period has been reached Is based on accounting income Incorporates the time value of money Ignores total project profitability
Why is depreciation expense recognized? Select one: a. To provide a better estimate of the market value of the depreciated assets. b. So that the balance sheet value of plant assets will more accurately reflect the replacement cost of the assets. c. To ensure that cash will be available at the end of the assets' useful life in order to replace it. d. To match the cost of the asset against the revenue using a reasonable allocation. method. Save AnswersNext
San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of 700,000. Use the present value tables appearing in Exhibits 2 and 5 of this chapter. b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of 500,000, 700,000, and 900,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate of return of 10%. Round to the nearest dollar. d. Interpret the results of parts (a), (b), and (c).
Evaluate the consequences of depreciation charged on the historical cost of the assets. I) depreciation is calculated on the original cost of fixed assets, the resulting figure under accumulated depreciation will be only the amount equivalent to the original costof the asset. II) If depreciation is calculated as per historical accounting, sufficient funds will not be available for assets' replacement when its life is over. III) the replacement cost of the asset will be more than the original cost of inflation so that replacement provisions made by the way of depreciation charge on the original cost will be insufficient. IV) the conventional system of accounts based on historical cost does not give a true and fair view of the business enterprise. a. Statements I, Il and IV b. Statements I, II II and IV C. Statements I, Il and II d. Statements II, IIl and IV
Which of the following statement best describes depreciation? a. It is a means of spreading the payment for non-current assets over a period of years b. It is a decline in the market value of assets c. It is a means of spreading the cost of non-current assets over the estimated useful life d. It is a means of estimating the amount of money needed to replace the assets
Calculate the Accrual accounting rate of return based on net initial investment (Assume straight-line depreciation.Use the average annual savings in cash operating costs when computing the numerator of the accrualaccounting rate of return.) for the special-purpose bottling machine.
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Project 1: Retooling Manufacturing Facility This project would require an initial investment of $4,960,000. It would generate $964,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,910,000. Project 2: Purchase Patent for New Product The patent would cost $3,785,000, which would be fully amortized over five years. Production of this product would generate $681,300 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $156,800 each.…
Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Project 1: Retooling Manufacturing Facility This project would require an initial investment of $5,050,000. It would generate $1,045,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $2,000,000. Project 2: Purchase Patent for New Product The patent would cost $4,100,000, which would be fully amortized over five years. Production of this product would generate $922,500 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $191,000…
Which one of the following is the proper dollar value of existing equipment to use in replacement analysis? A. Original cost B. Present market value if sold C. Present trade-in value D. Present book value E. Present market value if sold minus removal and selling expenses
Which of the following statements is the assumption on which straight line depreciation is based? Service value declines as a function of time rather than use Physical wear and tear are more important than economic obsolescence Service value declines as function of obsolescence rather than time The operating efficiency of the asset decrease in later years
4. What factors should be considered when estimating a new business' NINV? Is it any different for an asset replacement project. 5. Why is depreciation, a noncash expense, considered when estimating a project's net cash flows? 6. What are the potential tax consequences of selling an old asset in an asset replacement investment decision?