The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $25,000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,000 in after-tax savings each year during its life (including the depreciation tax shield).   Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)    Required: Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of: (a) 8 percent, (b) 10 percent, and (c) 12 percent. (Round your final answers to 2 decimal places.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
100%

The owner of Atlantic City Confectionary is considering the purchase of a new semiautomatic candy machine. The machine will cost $25,000 and last 10 years. The machine is expected to have no salvage value at the end of its useful life. The owner projects that the new candy machine will generate $4,000 in after-tax savings each year during its life (including the depreciation tax shield).

 

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

  

Required:

Compute the profitability index on the proposed candy machine, assuming an after-tax hurdle rate of: (a) 8 percent, (b) 10 percent, and (c) 12 percent. (Round your final answers to 2 decimal places.)

Future Value and Present
Value Tables
Table I
Period
4%
6%
8%
10%
12%
14%
20%
Future Value of $1.00(1 + j"
1
1.040
1.060
1.080
1.100
1.120
1.140
1.200
2
1.082
1.124
1.166
1.210
1.254
1.300
1.440
3
1.125
1.191
1.260
1.331
1.405
1.482
1.728
4
1.170
1.263
1.361
1.464
1.574
1.689
2.074
1.217
1.338
1.469
1.611
1.762
1.925
2.488
6
1.265
1.419
1.587
1.772
1.974
2.195
2.986
7
1.316
1.504
1.714
1.949
2.211
2.502
3.583
8.
1.369
1.594
1.851
2.144
2.476
2.853
4.300
9
1.423
1.690
1.999
2.359
2.773
3.252
5.160
10
1.480
1.791
2.159
2.594
3.106
3.707
6.192
11
1.540
1.898
2.332
2.853
3.479
4.226
7.430
12
1.601
2.012
2.518
3.139
3.896
4.818
8.916
13
1.665
2.133
2.720
3.452
4.364
5.492
10.699
14
1.732
2.261
2.937
3.798
4.887
6.261
12.839
15
1.801
2.397
3.172
4.177
5.474
7.138
15.407
20
2.191
3.207
4.661
6.728
9.646
13.743
38.338
30
3.243
5.744
10.063
17.450
29.960
50.950
237.380
40
4.801
10.286
21.725
45.260
93.051
188.880
1,469.800
Table II
Period
4%
6%
8%
10%
12%
14%
20%
uture Value of a Series of
$1.00 Cash Flows
1
1.000
1.000
1.000
1.000
1.000
1.000
1.000
Ordinary Annuity)
1+ n" - 1
2
2.040
2.060
2.080
2.100
2.120
2.140
2.220
3
3.122
3.184
3.246
3.310
3.374
3.440
3.640
4.247
4.375
4.506
4.641
4.779
4.921
5.368
5.416
5.637
5.867
6.105
6.353
6.610
7.442
6
6.633
6.975
7.336
7.716
8.115
8.536
9.930
7
7.898
8.394
8.923
9.487
10.089
10.730
12.916
8.
9.214
9.898
10.637
11.436
12.300
13.233
16.499
10.583
11.491
12.488
13.580
14.776
16.085
20.799
10
12.006
13.181
14.487
15.938
17.549
19.337
25.959
11
13.486
14.972
16.646
18.531
20.655
23.045
32.150
12
15.026
16.870
18.977
21.385
24.133
27.271
39.580
13
16.627
18.882
21.495
24.523
28.029
32.089
48.497
14
18.292
21.015
24.215
27.976
32.393
37.581
59.196
15
20.024
23.276
27.152
31.773
37.280
43.842
72.035
20
29.778
36.778
45.762
57.276
75.052
91.025
186.690
30
56.085
79.058
113.283
164.496
241.330
356.790
1,181.900
40
95.026
154.762
259.057
442.597
767.090
1,342.000
7,343.900
Transcribed Image Text:Future Value and Present Value Tables Table I Period 4% 6% 8% 10% 12% 14% 20% Future Value of $1.00(1 + j" 1 1.040 1.060 1.080 1.100 1.120 1.140 1.200 2 1.082 1.124 1.166 1.210 1.254 1.300 1.440 3 1.125 1.191 1.260 1.331 1.405 1.482 1.728 4 1.170 1.263 1.361 1.464 1.574 1.689 2.074 1.217 1.338 1.469 1.611 1.762 1.925 2.488 6 1.265 1.419 1.587 1.772 1.974 2.195 2.986 7 1.316 1.504 1.714 1.949 2.211 2.502 3.583 8. 1.369 1.594 1.851 2.144 2.476 2.853 4.300 9 1.423 1.690 1.999 2.359 2.773 3.252 5.160 10 1.480 1.791 2.159 2.594 3.106 3.707 6.192 11 1.540 1.898 2.332 2.853 3.479 4.226 7.430 12 1.601 2.012 2.518 3.139 3.896 4.818 8.916 13 1.665 2.133 2.720 3.452 4.364 5.492 10.699 14 1.732 2.261 2.937 3.798 4.887 6.261 12.839 15 1.801 2.397 3.172 4.177 5.474 7.138 15.407 20 2.191 3.207 4.661 6.728 9.646 13.743 38.338 30 3.243 5.744 10.063 17.450 29.960 50.950 237.380 40 4.801 10.286 21.725 45.260 93.051 188.880 1,469.800 Table II Period 4% 6% 8% 10% 12% 14% 20% uture Value of a Series of $1.00 Cash Flows 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Ordinary Annuity) 1+ n" - 1 2 2.040 2.060 2.080 2.100 2.120 2.140 2.220 3 3.122 3.184 3.246 3.310 3.374 3.440 3.640 4.247 4.375 4.506 4.641 4.779 4.921 5.368 5.416 5.637 5.867 6.105 6.353 6.610 7.442 6 6.633 6.975 7.336 7.716 8.115 8.536 9.930 7 7.898 8.394 8.923 9.487 10.089 10.730 12.916 8. 9.214 9.898 10.637 11.436 12.300 13.233 16.499 10.583 11.491 12.488 13.580 14.776 16.085 20.799 10 12.006 13.181 14.487 15.938 17.549 19.337 25.959 11 13.486 14.972 16.646 18.531 20.655 23.045 32.150 12 15.026 16.870 18.977 21.385 24.133 27.271 39.580 13 16.627 18.882 21.495 24.523 28.029 32.089 48.497 14 18.292 21.015 24.215 27.976 32.393 37.581 59.196 15 20.024 23.276 27.152 31.773 37.280 43.842 72.035 20 29.778 36.778 45.762 57.276 75.052 91.025 186.690 30 56.085 79.058 113.283 164.496 241.330 356.790 1,181.900 40 95.026 154.762 259.057 442.597 767.090 1,342.000 7,343.900
(1 + nº
Period
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
.962
.943
.926
.909
.893
.877
.862
.847
.833
.820
.806
.794
.781
.769
.758
2
.925
.890
.857
.826
.797
769
.743
718
.694
.672
.650
.630
.610
.592
.574
.889
.840
.794
.751
.712
.675
.641
.609
.579
.551
.524
.500
.477
.455
435
4
.855
792
.735
.683
.636
.592
.552
.516
482
451
423
.397
.373
.350
.329
5
.822
.747
.681
.621
.567
.519
.476
.437
402
.370
.341
.315
.291
269
.250
.790
.705
.630
.564
.507
.456
410
.370
.335
.303
.275
.250
.227
.207
.189
7
.760
.665
.583
.513
452
400
.354
314
279
.249
.222
.198
.178
.159
.143
8.
.731
.627
.540
.467
404
.351
.305
.266
233
.204
.179
.157
.139
.123
.108
.703
.592
.500
.424
.361
.308
.263
.225
.194
.167
.144
.125
108
.094
.082
10
.676
.558
.463
.386
.322
.270
227
.191
.162
.137
.116
.099
.085
.073
.062
11
.650
.527
.429
.350
287
.237
.195
.162
.135
.112
.094
.079
.066
.056
.047
12
.625
497
.397
.319
.257
.208
.168
.137
.112
.092
.076
.062
.052
.043
.036
13
.601
.469
.368
.290
.229
.182
.145
.116
.093
.075
.061
.050
.040
.033
.027
14
.577
.442
.340
.263
.205
.160
.125
.099
.078
.062
.049
.039
.032
.025
.021
15
.555
.417
.315
.239
.183
.140
.108
.084
.065
.051
.040
.031
.025
.020
.016
20
456
.312
.215
.149
.104
.073
.051
.037
.026
.019
.014
.010
.007
.005
.004
30
.308
174
.099
.057
.033
.020
.012
.007
.004
.003
.002
.001
.001
40
.208
.097
.046
.022
.011
.005
.003
.001
.001
Table IV
Present Value of Series of
$1.00 Cash Flows
1
Period
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
25%
26%
28%
30%
1
0.962
0.943
0.926
0.909
0.893
0.877
0.862
0.847
0.833
0.820
0.806
0.800
0.794
0.781
0.769
1.886
1.833
1.783
1.736
1.690
1.647
1.605
1.566
1.528
1.492
1.457
1.440
1.424
1.392
1.361
2.775
2.673
2.577
2.487
2.402
2.322
2.246
2.174
2.106
2.042
1.981
1.952
1.923
1.868
1.816
4
3.630
3.465
3.312
3.170
3.037
2.914
2.798
2.690
2.589
2.494
2.404
2.362
2.320
2.241
2.166
4.452
4.212
3.993
3.791
3.605
3.433
3.274
3.127
2.991
2.864
2.745
2.689
2.635
2.532
2.436
6
5.242
4.917
4.623
4.355
4.111
3.889
3.685
3.498
3.326
3.167
3.020
2.951
2.885
2.759
2.643
7
6.002
5.582
5.206
4.868
4.564
4.288
4.039
3.812
3.605
3.416
3.242
3.161
3.083
2.937
2.802
8
6.733
6.210
5.747
5.335
4.968
4.639
4.344
4.078
3.837
3.619
3.421
3.329
3.241
3.076
2.925
7.435
6.802
6.247
5.759
5.328
4.946
4.607
4.303
4.031
3.786
3.566
3.463
3.366
3.184
3.019
10
8.111
7.360
6.710
6.145
5.650
5.216
4.833
4.494
4.192
3.923
3.682
3.571
3.465
3.269
3.092
11
8.760
7.887
7.139
6.495
5.938
5.453
5.029
4,656
4.327
4.035
3.776
3.656
3.544
3.335
3.147
12
9.385
8.384
7.536
6.814
6.194
5.660
5.197
4.793
4.439
4.127
3.851
3.725
3.606
3.387
3.190
13
9.986
8.853
7.904
7.103
6.424
5.842
5.342
4.910
4.533
4.203
3.912
3.780
3.656
3.427
3.223
14
10.563
9.295
8.244
7.367
6.628
6.002
5.468
5.008
4.611
4.265
3.962
3.824
3.695
3.459
3.249
15
11.118
9.712
8.559
7.606
6.811
6.142
5.575
5.092
4.675
4.315
4.001
3.859
3.726
3.483
3.268
20
13.590
11.470
9.818
8.514
7.469
6.623
5.929
5.353
4.870
4.460
4.110
3.954
3.808
3.546
3.316
30
17.292
13.765
11.258
9.427
8.055
7.003
6.177
5.517
4.979
4.534
4.160
3.995
3.842
3.569
3.332
40
19.793
15.046
11.925
9.779
8.244
7.105
6.234
5.548
4.997
4.544
4.166
3.999
3.846
3.571
3.333
LG
23
Transcribed Image Text:(1 + nº Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% .962 .943 .926 .909 .893 .877 .862 .847 .833 .820 .806 .794 .781 .769 .758 2 .925 .890 .857 .826 .797 769 .743 718 .694 .672 .650 .630 .610 .592 .574 .889 .840 .794 .751 .712 .675 .641 .609 .579 .551 .524 .500 .477 .455 435 4 .855 792 .735 .683 .636 .592 .552 .516 482 451 423 .397 .373 .350 .329 5 .822 .747 .681 .621 .567 .519 .476 .437 402 .370 .341 .315 .291 269 .250 .790 .705 .630 .564 .507 .456 410 .370 .335 .303 .275 .250 .227 .207 .189 7 .760 .665 .583 .513 452 400 .354 314 279 .249 .222 .198 .178 .159 .143 8. .731 .627 .540 .467 404 .351 .305 .266 233 .204 .179 .157 .139 .123 .108 .703 .592 .500 .424 .361 .308 .263 .225 .194 .167 .144 .125 108 .094 .082 10 .676 .558 .463 .386 .322 .270 227 .191 .162 .137 .116 .099 .085 .073 .062 11 .650 .527 .429 .350 287 .237 .195 .162 .135 .112 .094 .079 .066 .056 .047 12 .625 497 .397 .319 .257 .208 .168 .137 .112 .092 .076 .062 .052 .043 .036 13 .601 .469 .368 .290 .229 .182 .145 .116 .093 .075 .061 .050 .040 .033 .027 14 .577 .442 .340 .263 .205 .160 .125 .099 .078 .062 .049 .039 .032 .025 .021 15 .555 .417 .315 .239 .183 .140 .108 .084 .065 .051 .040 .031 .025 .020 .016 20 456 .312 .215 .149 .104 .073 .051 .037 .026 .019 .014 .010 .007 .005 .004 30 .308 174 .099 .057 .033 .020 .012 .007 .004 .003 .002 .001 .001 40 .208 .097 .046 .022 .011 .005 .003 .001 .001 Table IV Present Value of Series of $1.00 Cash Flows 1 Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 25% 26% 28% 30% 1 0.962 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0.806 0.800 0.794 0.781 0.769 1.886 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 1.492 1.457 1.440 1.424 1.392 1.361 2.775 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.952 1.923 1.868 1.816 4 3.630 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.362 2.320 2.241 2.166 4.452 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.689 2.635 2.532 2.436 6 5.242 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 3.167 3.020 2.951 2.885 2.759 2.643 7 6.002 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.161 3.083 2.937 2.802 8 6.733 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.329 3.241 3.076 2.925 7.435 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.463 3.366 3.184 3.019 10 8.111 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 3.923 3.682 3.571 3.465 3.269 3.092 11 8.760 7.887 7.139 6.495 5.938 5.453 5.029 4,656 4.327 4.035 3.776 3.656 3.544 3.335 3.147 12 9.385 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 4.127 3.851 3.725 3.606 3.387 3.190 13 9.986 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 4.203 3.912 3.780 3.656 3.427 3.223 14 10.563 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611 4.265 3.962 3.824 3.695 3.459 3.249 15 11.118 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 4.315 4.001 3.859 3.726 3.483 3.268 20 13.590 11.470 9.818 8.514 7.469 6.623 5.929 5.353 4.870 4.460 4.110 3.954 3.808 3.546 3.316 30 17.292 13.765 11.258 9.427 8.055 7.003 6.177 5.517 4.979 4.534 4.160 3.995 3.842 3.569 3.332 40 19.793 15.046 11.925 9.779 8.244 7.105 6.234 5.548 4.997 4.544 4.166 3.999 3.846 3.571 3.333 LG 23
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Asset replacement decision
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
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education