Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 14F15
Cardinal Company is considering a five-year project that would require a $2,975,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 14%. The project would provide net operating income in each of five wars as follows: 
Required:
(Answer each question by referring to the original data unless instructed otherwise.)
14. Assume a postaudit showed that all estimates (including! total sales) were exactly correct expense for the variable expense ratio, which actually turned out to be 45%. What was the projects actual payback period?
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A project has an initial cost of $34276 and a three-year life. The company uses straight-line depreciation to a book value of zero over the life of the project. The projected net income from the project is $1,700, $2,000, and $2377 a year for the next three years, respectively. What is the average accounting return?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
[The following information applies to the questions displayed below.]
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a
useful life of five years and no salvage value. The company's discount rate is 12%. The project would provide net operating
income in each of five years as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
Depreciation
Total fixed expenses
$2,739,000
1, 100,000
1,639,000
$641,000
578,000
1,219,000
Net operating income
$4
420,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
2. What are the project's annual net cash inflows?
Annual net cash inflow
[The following information applies to the questions displayed below.]
Project Y requires a $306,000 investment for new machinery with a five-year life and no salvage value. The project yields
the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1)
Note: Use appropriate factor(s) from the tables provided.
Annual Amounts
Sales of new product
Expenses
Materials, labor, and overhead (except depreciation)
Depreciation-Machinery
Selling, general, and administrative expenses
Income
Project Y
$ 390,000
174,720
61,200
28,000
$ 126,080
2. Determine Project Y's payback period.
Project Y
Payback Period
Numerator:
1
Denominator:
=
=
Payback Period
0
Chapter 12 Solutions
Introduction To Managerial Accounting
Ch. 12.A - Basic Present Value Concepts Annual cash inflows...Ch. 12.A - Basic Present value Concepts Julie has just...Ch. 12.A - Prob. 3ECh. 12.A - Prob. 4ECh. 12.A - Basic Present Value Concepts The Atlantic Medical...Ch. 12.A - Prob. 6ECh. 12 - What is the difference between capital budgeting...Ch. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - Prob. 4Q
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- Cardinal Company is considering a five-year project that would require a $2,915,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 16%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $ 2,863, 000 1,014,000 1,849,000 $ 781,000 583, 000 1,364, 000 $ 485,000 Net operating incone Click here to view Exhibit 148-1 ond Exhibit 148-2, to determine the appropriate discount factor(s) using table. 15. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project's actual simple rate of return? (Round your answer to 2 decimal places.) Simple rate of returnarrow_forward[The following information applies to the questions displayed below.} Project Y requires a $313,500 investment for new machinery with a four-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Machinery Selling, general, and administrative expenses Income Project Y $ 380,000 170, 240 78, 375 27,000 $ 104,385 3. Compute Project Y's accounting rate of return. Project Y Numerator: Accounting Rate of Return Denominator: Accounting Rate of Return 0arrow_forward[The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out- $ 641,000 578,000 of-pocket costs Depreciation $ 2,739,000 1,100,000 1,639,000 D Total fixed expenses 1,219,000 Net operating income $ 420,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. Foundational 12-2 (Algo) 2. What are the project's annual net cash inflows?arrow_forward
- [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 18%. The project would provide net operating income in each of five years as follows: Sales $ 2,865,000 Variable expenses 1,015,000 Contribution margin 1,850,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 750,000 Depreciation 591,000 Total fixed expenses 1,341,000 Net operating income $ 509,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. rev: 05_11_2019_QC_CS-168512 7. What is the project’s payback period?arrow_forwardCardinal Company is considering a five-year project that would require a $2,975,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 14%. The project would provide net operating income in each of five years as follows: Required: (Answer each question by referring 10 the original data unless instructed otherwise.) 1. Which item(s) in the income statement shown above will not affect cash flows? 2. What are the project’s annual net cash inflows? 3. What is the present value of the project’s annual net cash inflows? 4. What is the project’s net present value? 5. What is the project profitability index for this project? (Round your answer to the nearest whole percent.) 6. What is the project’s internal rate of return to the nearest whole percent? 7. What is the project’s payback period? 8. What is the project’s simple rate of return for each of the five years? 9. If the company’s discount rate was 16% instead of 14%, would you…arrow_forward[The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 18%. The project would provide net operating income in each of five years as follows: Sales $ 2,865,000 Variable expenses 1,015,000 Contribution margin 1,850,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 750,000 Depreciation 591,000 Total fixed expenses 1,341,000 Net operating income $ 509,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. rev: 05_11_2019_QC_CS-168512 5. What is the project profitability index for this project?arrow_forward
- Required information [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project requiring a $2,812,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 16%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Advertising, salaries, and other Fixed expenses: fixed out-of-pocket costs Depreciation Total fixed expenses $ 2,855,000 1,010,000 1,845,000 $ 798,000 562,400 1,360,400 $ 484,600 Net operating income Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. 2. What are the project's annual net cash inflows? Annual net cash inflowarrow_forwardBartlett Car Wash Co. is considering the purchase of a new facility. It would allow Bartlett to increase its net income by $113,216 per year. Other information about this proposed project follows: Initial investment $ 524,150 Useful life 10 years Salvage value $ 55,000 Assume straight line depreciation method is used. Required: 1. Calculate the accounting rate of return for Bartlett. (Round your percentage answer to 2 decimal places.) 2. Calculate the payback period for Bartlett. (Round your answer to 2 decimal places.)arrow_forwardRequired information. [The following information applies to the questions displayed below.] Project Y requires a $331,500 investment for new machinery with a five-year life and no salvage value. The project yields the following annual results. Cash flows occur evenly within each year. (PV of $1. FV of $1. PVA of $1. and FVA of $1) Note: Use appropriate factor(s) from the tables provided. Annual Amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation). Depreciation Machinery Selling, general, and administrative expenses Income Years 1-5 4. Determine Project Y's net present value using 9% as the discount rate. Note: Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole dollar. Net present value Not Cash Flows Project Y $ 400,000 Present Value of Annuity at 9% 179,200 66,300 29,000 $ 125,500 Present Value of Net Cash Flowsarrow_forward
- Cardinal Company is considering a five-year project that would require a $2,975,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of- pocket costs Depreciation Total fixed expenses Net operating income $ 735,000 595,000 $ 2,735,000 1,000,000 1,735,000 Net present value 1,330,000 $ 405,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. 13. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project's actual net present value? (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to the nearest whole…arrow_forwardA new project has an initial cost of $250,000. The equipment will be depreciated on a straight-line basis to a zero book value over the five-year life of the project. The projected net income each year is $13,250, $18,000, $20,240, $15,150, and $11,900, respectively. What is the average accounting return? Multiple Choice 11.52% 8.95% 13.46% 12.57% 5.33%arrow_forwardThe data below are estimated for the project for the project study of a certain businessinvestment. IF money is worth 15% which of the project is more desirable, using PresentWorth Method and determine the difference in profit from each project study.For A, the initial investment is P5,000, with annual revenue of P2000. Annualdisbursement amounts to P650 with no salvage value at the end of its life which is 4years.For B, the initial investment is P8,000, with annual revenue of P3000. Annualdisbursement is P1500 with no salvage value at the end of its life which is 8 years.arrow_forward
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Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License