Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 13, Problem 21E
Exercise 6-21A Annual versus cumulative data for replacement decision
Because of rapidly advancing technology, Chicago Publications Corporation is considering replacing its existing typesetting machine with leased equipment. The old machine, purchased two years ago, has an expected useful life of six years and is in good condition. Apparently, it will continue to perform as expected for the remaining four years of its expected useful life. A four-year lease for equipment with comparable productivity can be obtained for $40,000 per year. The following data apply to the old machine:
| Original cost | $480,000 |
| Accumulated depredation | 160,000 |
| Current market value | 190,000 |
| Estimated salvage value | 10,000 |
Required
a. Determine the annual opportunity cost of using the old machine. Based on your computations, recommend whether to replace it.
b. Determine the total cost of the lease over the four-year contract. Based on your computations, recommend whether to replace the old machine.
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Problem 6-26 Project Analysis and Inflation Shinoda Manufacturing, Incorporated, has been considering the purchase of a new manufacturing facility for $630,000. The facility is to be fully depreciated on a straightline basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $455,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 3 percent. Production costs at the end of the first year will be $300,000, in nominal terms, and they are expected to increase at 4 percent per year. The real discount rate is 6 percent. The corporate tax rate is 24 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Problem 6-26 Project Analysis and Inflation
Shinoda Manufacturing, Incorporated, has been considering the purchase of a new
manufacturing facility for $590,000. The facility is to be fully depreciated on a straight-
line basis over seven years. It is expected to have no resale value at that time. Operating
revenues from the facility are expected to be $435,000, in nominal terms, at the end of
the first year. The revenues are expected to increase at the inflation rate of 4 percent.
Production costs at the end of the first year will be $280,000, in nominal terms, and they
are expected to increase at 5 percent per year. The real discount rate is 7 percent. The
corporate tax rate is 25 percent. Calculate the NPV of the project. (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
$
91,697.77
NPV
Problem 6-11 Calculating NPV
Medavoy Company is considering a new project that complements its existing business.
The machine required for the project costs $5.0 million. The marketing department
predicts that sales related to the project will be $3.07 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 $240,000 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 11 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.,…
Chapter 13 Solutions
Survey Of Accounting
Ch. 13 - Prob. 1QCh. 13 - Prob. 2QCh. 13 - Prob. 3QCh. 13 - Prob. 4QCh. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Prob. 7QCh. 13 - Prob. 8QCh. 13 - Prob. 9QCh. 13 - Prob. 10Q
Ch. 13 - Prob. 11QCh. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - Prob. 15QCh. 13 - Prob. 16QCh. 13 - Prob. 17QCh. 13 - Prob. 18QCh. 13 - Prob. 19QCh. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Exercise 6-5AOpportunity costs Norman Dowd owns...Ch. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Exercise 6-11AEstablishing price for an...Ch. 13 - Exercise 6-12AOutsourcing decision with...Ch. 13 - Exercise 6-13AOutsourcing decision affected by...Ch. 13 - Prob. 14ECh. 13 - Exercise 6-15ASegment elimination decision Dudley...Ch. 13 - Prob. 16ECh. 13 - Exercise 6-17AAsset replacementopportunity cost...Ch. 13 - Prob. 18ECh. 13 - Exercise 6-19A Asset replacement decision Mead...Ch. 13 - Exercise 6-20A Asset replacement decision Kahn...Ch. 13 - Exercise 6-21A Annual versus cumulative data for...Ch. 13 - Problem 6-23A Context-sensitive relevance Required...Ch. 13 - Problem 6-24A Context-sensitive relevance...Ch. 13 - Problem 6-25A Effect of order quantity on special...Ch. 13 - Problem 6-26A Effects of the level of production...Ch. 13 - Problem 6-28A Eliminating a segment Western Boot...Ch. 13 - Effect of activity level and opportunity cost on...Ch. 13 - Problem 6-30A Comprehensive problem including...Ch. 13 - Prob. 29PCh. 13 - ATC 6-1 Business Application Case Analyzing...Ch. 13 - ATC 6-2 Group Assignment Relevance and cost...Ch. 13 - Prob. 3ATCCh. 13 - Prob. 4ATCCh. 13 - Prob. 5ATC
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