GEN COMBO FUNDAMENTALS OF COST ACCOUNTING; CONNECT 1S ACCESS CARD
5th Edition
ISBN: 9781259911651
Author: William N. Lanen Professor
Publisher: McGraw-Hill Education
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Chapter 14, Problem 46P
a.
To determine
Calculate the timing of the purchase of the new machine if Company O waits until next year.
b.
To determine
Define the costs that must be considered in making this decision.
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1. Which machine should be selected using the Payback period method?
2. Which machine should be selected using the Accounting rate of return based on the net investment method?
3. Which machine should be selected using the Internal rate of return method?
4.Which machine should be selected using the Net present value, (cost of capital = 10%) method?
5.Which machine should be selected using the Net present value, (cost of capital = 12%) method?
Use the information provided to answer the questions.Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.
QUESTION) Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places).
INFORMATION
Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Project A Project BInitial cost R300 000 R300 000Scrap value R40 000 0Depreciation per year R52 000 R60 000Net profitYear 1 R20 000Year 2 R30 000Year 3 R50 000Year 4 R60 000Year 5 R10 000Net cash flowsYear 1 R90 000Year 2 R90 000Year 3 R90 000Year 4 R90 000Year 5 R90 000
Additional informationThe discount rate used by the company is 12%.
Transcribed Image Text:Number of Periods 1 2 3 4 5 6 7 8 m 10 11 12 13 14 15 1% 2% 0.9901 0.9804 0.9709 3% 3.9020 3.8077…
Please describe NPV, IRR and their relationship.
How do you evaluate each for making an investment decision? That is, what is a favorable NPV and IRR for making an investment decision.
If you were developing a capital budgeting process at your employer, how would you prioritize your projects?
What is the NPV when IRR = WACC, IRR>WACC, and IRR<WACC?
There is a duplex for sale in Absecon for $700,000 at this time. It has 2 units that generate a total of $25,000 in gross rent. The property taxes are $4,000, commercial property insurance is $2,000, flood insurance is $1,000, and annual maintenance is $2,000. You expect to sell it in one year at a price growth of 0%. What is the NPV with a WACC of 10%.
Is the IRR greater or less than the WACC? Would you invest in this project and why?
Chapter 14 Solutions
GEN COMBO FUNDAMENTALS OF COST ACCOUNTING; CONNECT 1S ACCESS CARD
Ch. 14 - What are the advantages of divisional income as a...Ch. 14 - How is divisional income like income computed for...Ch. 14 - How is return on investment (ROI) computed?Ch. 14 - What are the advantages of using an ROI-type...Ch. 14 - How can ratios, such as ROI, be used for control...Ch. 14 - How does residual income differ from ROI?Ch. 14 - How does EVA differ from residual income?Ch. 14 - What impact does the use of gross book value or...Ch. 14 - What are the dangers of using only business unit...Ch. 14 - A company prepares the master budget by taking...
Ch. 14 - Prob. 11CADQCh. 14 - What problems might there be if the same methods...Ch. 14 - Prob. 13CADQCh. 14 - The chapter identified some problems with ROI-type...Ch. 14 - Failure to invest in projects is not a problem...Ch. 14 - How would you respond to the following comment?...Ch. 14 - Prob. 17CADQCh. 14 - Prob. 18CADQCh. 14 - Prob. 19CADQCh. 14 - Prob. 20CADQCh. 14 - Prob. 21CADQCh. 14 - Compute Divisional Income Arlington Clothing,...Ch. 14 - Compute Divisional Income Refer to Exercise 14-22....Ch. 14 - Computing Divisional Income: Incomplete...Ch. 14 - Compute RI and ROI The Campus Division of...Ch. 14 - Prob. 26ECh. 14 - Compare Alternative Measures of Division...Ch. 14 - Comparing Business Units Using ROI Back Mountain...Ch. 14 - Comparing Business Units Using Residual Income...Ch. 14 - Prob. 30ECh. 14 - Impact of New Asset on Performance Measures The...Ch. 14 - Prob. 32ECh. 14 - Prob. 33ECh. 14 - Impact of an Asset Disposal on Performance...Ch. 14 - Prob. 35ECh. 14 - Compare Historical Cost, Net Book Value to Gross...Ch. 14 - Prob. 37ECh. 14 - Compare Current Cost to Historical Cost Refer to...Ch. 14 - Effects of Current Cost on Performance...Ch. 14 - Comparing Business Units Using Divisional Income,...Ch. 14 - Comparing Business Units Using Economic Value...Ch. 14 - Comparing Business Units Using EVA: Solving for...Ch. 14 - Equipment Replacement and Performance Measures...Ch. 14 - Prob. 44PCh. 14 - Prob. 45PCh. 14 - Prob. 46PCh. 14 - Prob. 47PCh. 14 - Prob. 48PCh. 14 - Evaluate Performance Evaluation System: Behavioral...Ch. 14 - ROI, EVA, and Different Asset Bases Hys is a...Ch. 14 - Economic Value Added Bisbee Health Products...Ch. 14 - Prob. 52P
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