Managerial Accounting: Tools for Business Decision Making
7th Edition
ISBN: 9781118334331
Author: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Publisher: WILEY
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Textbook Question
Chapter 12, Problem 12.11E
Drake Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net
Drake Corporation uses an 11% target rate of
Instructions
(a) What is the cash payback period for this proposal?
(b) What is the annual rate of return for the investment?
(c) What is the
(CMA-Canada adapted)
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Drake Corporation is reviewing an investment proposal. The initial cost is $105,100. Estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is assumed to equal its book value. There would be no salvage value at the end of the investment’s life.
Investment Proposal
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AnnualCash Flows
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1
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41,900
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3
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31,000
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5
0
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Drake Corporation uses an 11% target rate of return for new investment proposals.Click here to view the factor table.(a)What is the cash payback period for this proposal? (Round answer to 2 decimal places, e.g. 10.50.)
Cash…
Metro Car Washes, Inc., is reviewing an investment proposal. The initial cost as well as the estimate of the book value of
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presented in the following schedule. The salvage value of the investment at the end of each year is equal to its book
value. There would be no salvage value at the end of the investment's life.
Year
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1
2
3
Initial Cost
and Book Value
$240,000
160,000
96,000
48,000
16,000
Annual Net After-Tax
Cash Flows
Exercise 16-37 Part 3
$103,000
89,000
75,000
61,000
47,000
Annual
Net Income
$23,000
25,000
27,000
29,000
31,000
Management uses a 14 percent after-tax target rate of return for new investment proposals.
Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)
3. Compute the proposal's net present value. (Round intermediate calculations to the nearest whole dollar.)
Net present value
Drake Corporation is reviewing an investment proposal. The initial cost is $105,700. Estimates of the book value of the investment at
the end of each year, the net cash flows for each year, and the net income for each year are presented in the schedule below. All cash
flows are assumed to take place at the end of the year. The salvage value of the investment at the end of each year is assumed to equal
its book value. There would be no salvage value at the end of the investment's life.
Year
1
2
3
4
Investment Proposal
Book Value
$70,500
42,400
20,600
6,800
Annual
Annual
Cash Flows Net Income
$9,700
11.100,
$44,900
39.200
36,000
29,100
25,205
14,200
15,300
18,405
Drake Corporation uses an 11% target rate of return for new investment proposals.
Click here to view the factor table.
SU
Chapter 12 Solutions
Managerial Accounting: Tools for Business Decision Making
Ch. 12 - Prob. 1QCh. 12 - Prob. 2QCh. 12 - Tom Wells claims the formula for the cash payback...Ch. 12 - Prob. 4QCh. 12 - What is the decision rule under the net present...Ch. 12 - Discuss the factors that determine the appropriate...Ch. 12 - What simplifying assumptions were made in the...Ch. 12 - What are some examples of potential intangible...Ch. 12 - What steps can be taken to incorporate intangible...Ch. 12 - Prob. 10Q
Ch. 12 - Prob. 11QCh. 12 - Prob. 12QCh. 12 - Prob. 13QCh. 12 - What are the strengths of the annual rate of...Ch. 12 - Prob. 15QCh. 12 - Prob. 16QCh. 12 - Prob. 12.1BECh. 12 - Hsung Company accumulates the following data...Ch. 12 - Thunder Corporation, an amusement park, is...Ch. 12 - Caine Bottling Corporation is considering the...Ch. 12 - McKnight Company is considering two different,...Ch. 12 - Prob. 12.6BECh. 12 - Prob. 12.7BECh. 12 - Prob. 12.8BECh. 12 - Prob. 12.9BECh. 12 - Prob. 12.1DICh. 12 - Prob. 12.2DICh. 12 - Prob. 12.3DICh. 12 - Prob. 12.4DICh. 12 - Prob. 12.5DICh. 12 - Prob. 12.1ECh. 12 - Doug's Custom Construction Company is considering...Ch. 12 - Prob. 12.3ECh. 12 - BAK Corp. is considering purchasing one of two new...Ch. 12 - Bruno Corporation is involved in the business of...Ch. 12 - BSU Inc. wants to purchase a new machine for...Ch. 12 - Iggy Company is considering three capital...Ch. 12 - Prob. 12.8ECh. 12 - Legend Service Center just purchased an automobile...Ch. 12 - Vilas Company is considering a capital investment...Ch. 12 - Drake Corporation is reviewing an investment...Ch. 12 - U3 Company is considering three long-term capital...Ch. 12 - Prob. 12.2APCh. 12 - Brooks Clinic is considering investing in new...Ch. 12 - Jane's Auto Care is considering the purchase of a...Ch. 12 - Prob. 12.5APCh. 12 - Prob. 12CDCh. 12 - Luang Company is considering the purchase of a new...Ch. 12 - Prob. 12.2BYPCh. 12 - Tecumseh Products Company has its headquarters in...Ch. 12 - Prob. 12.4BYPCh. 12 - Prob. 12.5BYPCh. 12 - Prob. 12.6BYPCh. 12 - Prob. 12.8BYP
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