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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Chapter 13, Problem 41P
To determine
Prepare a table (with a given detail in Exhibit 13–3) that focuses on residual income. Use a 10% rate to compute the imputed interest charge.
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a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 8 percent? (Enter "ROI" answers as a percentage rounded to 1 decimal place (i.e., 32.1). Negative amounts should be indicated by a minus sign.)
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company
Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $288,000. The equipment has an estimated life of 10 years and no
residual value. It is expected to provide yearly net cash flows of $36,000. The company's minimum desired rate of return for net present value
analysis is 12%.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893 0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402 2.283
2.106
4
3.465 3.170
3.037 2.855
2.589
5
4.212
3.791
3.605
3.353
2.991
6
4.917
4.355 4.111 3.785 3.326
7
5.582
4.868
4.564
4.160
3.605
8
6.210
5.335 4.968 4.487
3.837
9
6.802
5.759
5.328
4.772 4.031
10
7.360
6.145 5.650
5.019 4.192
Compute the following:
a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place.
8 X %
If straight-line and double-declining balance depreciation rates for n = 8 years are calculated and compared, the rates (in percent) for the second year are:
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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- If the current value of a chemical plant is $ 800 thousand, its scrap value is $ 50 thousand, the service life is 8 years, the interest rate is 7%, the depreciation value and book value for each year, By the linear method With the decreasing balances method By the method of summation of years Calculate using the accumulated fund method. Show depreciation and book value changes by years on the chart.arrow_forwardAlternative Methods I and II are proposed for a security operation. The following is comparative information: Determine which is the better alternative based on an after-tax annual cost analysis with an effective income tax rate of 40% and an after-tax MARR of 15%, assuming the following methods of depreciation: Solve, a. SL b. MACRS.arrow_forwardEstimate the value of the property using the income approach based on the following facts: Net operating income annually for next 3 years is $400000 At end of three years, property is sold with an existing cap rate of 10% and a commission of 4% on sale The discount cap rate is the same as the existing cap rate and the operating income is assumed to be received at year endarrow_forward
- Perform a present worth (PW)-based evaluation of the two alternatives below using a spreadsheet. The after-tax minimum acceptable rate of return (MARR) is 8% per year, Modified Accelerated Cost Recovery System (MACRS) depreciation applies, and Te=40%. The (GI -OE) estimate is made for the first 3 years; it is zero in year 4 when each asset is sold. Alternative First Cost, $ Salvage Value, Year 4, $ GI-OE, $ per Year Recovery Period, Years X -8,000 0 3,500 3 Y -13,000 2,000 5,000 3 The PW for alternative X is determined to be $ The PW for alternative Yis determined to be $ Alternative (Click to select) is selected.arrow_forwardConsider a piece of equipment for which the expenditure at the beginning of period 1 is $20,000 The net revenue at the end of year 1 is $8,000 The net revenue at the end of year 2 is $14,000 The net revenue at the end of year 3 is $18,000, which includes salvaging the equipment. The interest rate is 5%. What is the net present value of this investment over the three year period including the initial purchase of the asset and the revenue from the first three years of operation (including sale of the equipment)?arrow_forwardAssume the returns from holding an asset are normally distributed. Also assume the average annual return for holding the asset a period of time was 15.3 percent and the standard deviation of this asset for the period was 33.2 percent. Use the NORMDIST function in Excel® to answer the following questions. a. What is the approximate probability that your money will double in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 3 decimal places, e.g., 32.161.) b. What is the approximate probability that your money will triple in value in a single year? (Do not round intermediate calculations and enter your answer as a percent rounded to 8 decimal places, e.g., 32.16161616.)arrow_forward
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