Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 13, Problem 26E
Refer to the data for Exercise 13–24. Assume that the company’s minimum desired rate of
Required: Compute Dakota Division’s residual income for the year.
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The Best Manufacturing Company is considering a new investment. Financial projections
for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all
sales revenue is received in cash, all operating costs and income taxes are paid in cash,
and all cash flows occur at the end of the year. All net working capital is recovered at the
end of the project.
Investment
Sales revenue
Operating costs
Depreciation
Net working capital spending
Net income
Year O
$27,000
Year 1
$
Cash flow
330
Year 1
$14,000 $14,500
3,000
6,750
380
280
a. Compute the incremental net income of the investment for each year. (Do not round
intermediate calculations.)
Year 2
Year 2
Year O
$-27330
Year 3
3,100 3,200
6,750
6,750
430
330
3069
$15,000 $12,000
2,400
6,750
?
Year 1
$
Year 4
Year 3
b. Compute the incremental cash flows of the investment for each year. (Do not round
intermediate calculations. A negative answer should be indicated by a minus sign.)
3333
Year 4
$
Year 2
$
c. Suppose the…
Company A has provided figures for two investment projects, only one of which may be chosen. These are the calculations based on the figures:
Payback Period
The Accounting Rate of Return / Return on Capital Employed
Net Present Value
Project A
2 years 4 months
27.08%
£63,705
Project B
2 years 7 months
39.47%
£74.971
Analyse and provide recommendations as to what project needs to be chosen based on the calculations above.
The business units of contractor companies carry out investment expenditures for a capital of 80,015,000 the investment is expected to be generate a cash flow of 6,015,000 per year for 8 years, costs capital (cost of money) of 5% per year and an assumed interest rate of 10%. Pelase Count : a. Payback Period of Investment b. NPV c. Profitability Index d. IRR
Chapter 13 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 13 - What is the managerial accountants primary...Ch. 13 - Define goal congruence, and explain why it is...Ch. 13 - Describe the managerial approach known as...Ch. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Create an example showing how residual income is...Ch. 13 - What is the chief disadvantage of ROI as an...Ch. 13 - Why is there typically a rise in ROI or residual...Ch. 13 - Define the term economic value added. How does it...
Ch. 13 - Distinguish between the following measures of...Ch. 13 - Why do some companies use gross book value instead...Ch. 13 - Explain why it is important in performance...Ch. 13 - How do organizations use pay for performance to...Ch. 13 - Describe an alternative to using ROI or residual...Ch. 13 - Prob. 16RQCh. 13 - Prob. 17RQCh. 13 - Discuss the importance of nonfinancial information...Ch. 13 - Identify and explain the managerial accountants...Ch. 13 - Describe four methods by which transfer prices may...Ch. 13 - Explain the significance of excess capacity in the...Ch. 13 - Why might income-tax laws affect the...Ch. 13 - Prob. 23RQCh. 13 - The following data pertain to Dakota Divisions...Ch. 13 - Refer to the preceding exercise. Requited:...Ch. 13 - Refer to the data for Exercise 1324. Assume that...Ch. 13 - Golden Gate Construction Associates, a real estate...Ch. 13 - Prob. 28ECh. 13 - Prob. 29ECh. 13 - Refer to Exhibit 133. Assume that you are a...Ch. 13 - Prob. 32ECh. 13 - Prob. 33ECh. 13 - Prob. 34ECh. 13 - Prob. 35ECh. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 37PCh. 13 - Prob. 38PCh. 13 - Long Beach Pharmaceutical Company has two...Ch. 13 - Prob. 40PCh. 13 - Prob. 41PCh. 13 - Megatronics Corporation, a massive retailer of...Ch. 13 - Prob. 43PCh. 13 - Prob. 44PCh. 13 - Prob. 45PCh. 13 - Clearview Window Company manufactures windows for...Ch. 13 - Prob. 47PCh. 13 - Alpha Communications, Inc., which produces...Ch. 13 - Prob. 49PCh. 13 - Holiday Entertainment Corporation (HHC), a...Ch. 13 - InterGlobal Industries is a diversified...Ch. 13 - Prob. 52C
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- Use the following information for Exercises 11-31 and 11-32: Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last years results: Washingtons actual cost of capital was 12%. Exercise 11-32 Residual Income Refer to the information for Washington Company above. In addition, Washington Companys top management has set a minimum acceptable rate of return equal to 8%. Required: 1. Calculate the residual income for the Adams Division. 2. Calculate the residual income for the Jefferson Division.arrow_forwardThe income statement comparison for Forklift Material Handling shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the return on investment. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the residual income for each year. Explain how this compares to your findings in part C.arrow_forwardThe income statement comparison for Rush Delivery Company shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the ROI. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the RI for each year. Explain how this compares to your findings in part C.arrow_forward
- Consider the following financial data for a project: (a) What is the i* for this project? (b) If the annual expenses increase at a 7% rate over the previous year's expenses, but annual revenue is unchanged, what is the new i*?arrow_forwardA company's average operating assets are 220,000 and its net operating income is 44,000. the company invested in new project, increasing average assets to 250,000 and increasing net operating income to 49,550. what is the project's residual income if required rate of return is 20%?arrow_forwardThe Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 23 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 27,000 Sales revenue $ 14,000 $ 14,500 $ 15,000 $ 12,000 Operating costs 3,000 3,100 3,200 2,400 Depreciation 6,750 6,750 6,750 6,750 Net working capital spending 330 380 430 330 ? a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.)arrow_forward
- It is known that the market rates for financing and reinvestment of resources for the investment project under a company are respectively 6.2% pa and 4.3% pa. and that its cost of capital for the project is 12% per year. It is requested: (i) using the appropriate method, to determine the internal rate of return of the project, (ii) the justification for the use of the method employed (iii) and the feasibility of the project from the point of view of IRR versus cost of capital Fluxo de caixa=arrow_forwardEXERCISE 1: PROFIT FOR THE YEAR AND CASH FLOW With the following information, calculate the project's (1) profit for the year, and (2) cash flow: operating profit ($200,000), capital cost allowance ($50,000), other expenses ($100,000), and income tax rate (40%).arrow_forwardThe Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 41,000 Sales revenue $ 21,000 $ 21,500 $ 22,000 $ 19,000 Operating costs 4,400 4,500 4,600 3,800 Depreciation 10,250 10,250 10,250 10,250 Net working capital spending 470 520 570 470 ? a. Compute the incremental net income of the investment for each year. Year 1, Year 2, Year 3, Year 4 b. Compute the incremental cash flows of the investments for each year. Year 1, Year 2, Year 3, Year 4 c. Suppose the appropriate discount rate…arrow_forward
- The Fleming Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 25 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 34,000 Sales revenue $ 17,500 $ 18,000 $ 18,500 $ 15,500 Operating costs 3,700 3,800 3,900 3,100 Depreciation 8,500 8,500 8,500 8,500 Net working capital spending 400 450 500 400 ? a. Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A…arrow_forwardGiven information on the following set of projects from a roadway agency, determine the Minimum Attractive Rate of Return (MARR) for this agency if the agency budget is 1.85 million. Assume n=25 years for all projects listed.arrow_forwardConsider an investment with an initial cost of $10,000 and uniform annual revenue of $2,500 per year over the next five years. (a) Show that the IRR for this investment is 7.9308%. (b) Explain why is the IRR in (a) less than 2,500/10,000 = 25%.arrow_forward
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