Managerial Accounting
17th Edition
ISBN: 9781260247787
Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 14.A, Problem 5E
Exercises 13A-5 Basic Present Value Concepts L013-7
The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value.
Required:
What is the maximum price (i.e, the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required
- Sixteen percent?
- Twenty percent?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Basic Present Value Concepts
The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value.
Required:
What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic’s required rate of return is:
1. Sixteen percent?
2. Twenty percent?
Question 9, P1-4 (book/static)
Part 1 of 5
Marginal cost-benefit analysis and the goal of the firm Wendy Winter needs to determine whether the current warehouse system should be upgraded to a new system. The new system would require an initial cash outlay of $250,000. The current system could be sold for $55,000. The monetary benefit of the
new system over the next five years is $325,000, while the monetary benefit of the current system over the same period is $125,000. Furthermore, it is expected that the firm's stock price will increase if the new system is implemented because it will make the firm more cost efficient and cost effective in the long
run.
a. Identify and describe the analysis Wendy should use to make the decision.
b. Calculate the marginal benefit of the proposed new warehouse system.
c. Calculate the marginal cost of the proposed new warehouse system.
d. What should Wendy's recommendation to the firm be regarding the new warehouse system? Explain your recommendation.…
The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system
will last for nine years and have no salvage value.
Click here to view Exhibit 14B-1 and Exhibit 14B-2 to determine the appropriate discount factor(s) using tables.
Required:
What is the maximum price (l.e., the price that exactly equals the present value of the annual savings in billing costs) Atlantic Medical
Clinic should be willing to pay for the new computer system if the clinic's required rate of return is:
Note: Round your final answer to the nearest whole dollar amount.
Maximum Price
1. Seven percent
2. Eleven percent
Chapter 14 Solutions
Managerial Accounting
Ch. 14.A - Prob. 1ECh. 14.A - Prob. 2ECh. 14.A - Prob. 3ECh. 14.A - Prob. 4ECh. 14.A - Exercises 13A-5 Basic Present Value Concepts...Ch. 14.A - Prob. 6ECh. 14.C - Prob. 1ECh. 14.C - Prob. 2ECh. 14.C - PROBLEM 13C-3 Income Taxes and Net Present Value...Ch. 14.C - Prob. 4P
Ch. 14.C - PROBLEM 13C-5 Income Taxes and Net Present Value...Ch. 14 - Prob. 1QCh. 14 - Prob. 2QCh. 14 - Prob. 3QCh. 14 - Prob. 4QCh. 14 - Prob. 5QCh. 14 - Prob. 6QCh. 14 - Prob. 7QCh. 14 - Prob. 8QCh. 14 - Prob. 9QCh. 14 - Prob. 10QCh. 14 - Prob. 11QCh. 14 - Prob. 12QCh. 14 - Prob. 13QCh. 14 - Prob. 14QCh. 14 - What is the major criticism of the payback and...Ch. 14 -
The Excel worksheet form that appears below is to...Ch. 14 - Prob. 2AECh. 14 - Prob. 1F15Ch. 14 - Prob. 2F15Ch. 14 - Prob. 3F15Ch. 14 - Prob. 4F15Ch. 14 - Prob. 5F15Ch. 14 - Prob. 6F15Ch. 14 - Prob. 7F15Ch. 14 - Prob. 8F15Ch. 14 - Prob. 9F15Ch. 14 - Prob. 10F15Ch. 14 - (
595.000
)...Ch. 14 - Prob. 12F15Ch. 14 - Prob. 13F15Ch. 14 - Prob. 14F15Ch. 14 - Prob. 15F15Ch. 14 - Prob. 1ECh. 14 - Prob. 2ECh. 14 - Prob. 3ECh. 14 - Prob. 4ECh. 14 - Prob. 5ECh. 14 - Prob. 6ECh. 14 - Prob. 7ECh. 14 - Prob. 8ECh. 14 - Prob. 9ECh. 14 - Prob. 10ECh. 14 - Prob. 11ECh. 14 - Prob. 12ECh. 14 - Prob. 13ECh. 14 - Prob. 14ECh. 14 -
EXERCISE 13-15 Internal Rateof Return and Net...Ch. 14 - Prob. 16PCh. 14 - PROBLEM 13-17 Net Present Value Analysis; Internal...Ch. 14 - Prob. 18PCh. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Prob. 21PCh. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24PCh. 14 - Prob. 25PCh. 14 - Prob. 26PCh. 14 -
PROBLEM 13-27 Net Present Value Analysis...Ch. 14 - Prob. 28PCh. 14 - Prob. 29PCh. 14 - Prob. 30PCh. 14 - Prob. 31CCh. 14 - Prob. 32C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for nine years and have no salvage value. Required: What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required rate of return is: (Round your final answer to the nearest whole dollar amount.) Maximum Price 1. Seven percent $ 49,164 2. Eleven percent $ 34,198arrow_forwardThe Atlantic Medical Clinic can purchase a new computer system that will save $6,000 annually in billing costs. The computer system will last for six years and have no salvage value. Required: What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required rate of return is: (Round your final answer to the nearest whole dollar amount.) Maximum Price 1. Nine percent 2. Fourteen percentarrow_forwardThe Atlantic Medical Clinic can purchase a new computer system that will save $6,000 annually in billing costs. The computer system will last for seven years and have no salvage value. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic’s required rate of return is: (Round your final answer to the nearest whole dollar amount.) Maximum Price 1. Seven percent 2. Nine percentarrow_forward
- The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billingcosts. The computer system will last for eight years and have no salvage value.Required:Up to how much should the Atlantic Medical Clinic be willing to pay for the new computer system if theclinic’s required rate of return is:1. Sixteen percent?2. Twenty percent?arrow_forward5/ a/ You propose to replace windows to save energy. With a discount rate of 6%, what yearly energy savings are required to offset the $25,000 project cost? Consider an investment period of 10 years, and a lifetime of the windows of 30 years b/ Assume that the windows save the amount of energy calculated in 5/a. If the windows would have needed to be replaced anyways at a cost of $20,000 for standard efficiency windows, what is the ROI and Payback for upgrading the windows to the energy efficient model used in Sa/ for the upgrade cost of $5,000?arrow_forward10.3 You have been asked to evaluate the proposed acquisition of a new clinical laboratory test system. The system’s price is $50,000, and it will cost another $10,000 for transportation and installation. The system is expected to be sold after three years because the laboratory is being moved at that time. The best estimate of the system’s salvage value after three years is $20,000. The system will have no impact on volume or reimbursement (and hence revenues), but it is expected to save $20,000 per year in operating costs. The not-for-profit business’s corporate cost of capital is 10 percent, and the standard risk adjustment is 4 percentage points. What is the project’s net investment outlay at time 0? What are the project’s operating cash flows in years 1, 2, and 3? What is the terminal cash flow at the end of year 3? If the project has average risk, is it expected to be profitable? What if the project is judged to have lower-than-average risk? Higher-than average risk?arrow_forward
- Question 1 Health for All (“H4A”) is launching a new innovative hand sanitizer. However, due to intense research and development required to meet regulatory requirements, H4A wants to ensure they charge the correct price to recover all these costs. Through their research they identified that if they charge $60 per bottle of sanitizer, 250 000 bottles will be demanded per year. They expect that the demand for sanitizers will fall in the next three years therefore they have estimated this product to have a life of 3 years. Given the current Covid-19 pandemic, many other businesses are also selling hand sanitizers. Therefore the market that H4A wants to enter has a very high elastic demand. It has thus been observed that if H4A increases its price by $2, the demand will fall by 2 000 bottles while a reduction in price by the same amount will increase demand by 2 000 bottles as well. The production of the sanitizers will incur the following costs per year at differing levels of production.…arrow_forwardWe project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Year 12345 Unit Sales 101,000 113,000 136,000 142,000 95,000 The new system will be priced to sell at $475 each. The cockroach eradicator project will require $2,200,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $345, and total fixed costs are $2,500,000 per year. The equipment necessary to begin production will cost a total of $22 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 17%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV Aarrow_forwardAccessibility: Unavailable QUESTION 6 Simple Rate of Return Method The management of Stillford Micro Brew is considering the purchase of an automated bottling machine for $80,000. The machine would replace an old piece of equipment that costs $33,000 per year to operate. The new machine would cost $10,000 per year to operate. The old machine currently in use could be sold now for a scrap value of $5,000. The new machine would have a useful life of 10 years with no salvage value. Required: Compute the simple rate of return on the new automated bottling machine. 2arrow_forward
- i will 5 upvotes urgent A firm wants to sponsor a new engineering lab at a local university. This requires $4.0M to construct the lab, $1.5M to equip it, and $750,000 every 6 years for new equipment. What is the required endowment if the university will earn 8% interest on the funds?arrow_forwardQUESTION 9: Chicago Food Services is considering installing a new refrigeration system that will cost $600,000. The system will be depreciated at a rate of 20% (Class 8) per year over the system's ten- year life and then it will be sold for $90,000. The new system will save $180,000 per year in pre-tax operating costs. An initial investment of $70,000 will have to be made in working capital. The tax rate is 35% and the discount rate is 10%. Calculate the NPV of the new refrigeration system. All calculations must be shown.arrow_forwardUse Annual Worth method to calculate the benefit/cost ratio at i = 6% for a new library. The first cost is $500K, and O&M costs are $100K per year. There is no salvage value after 30 years. Community benefits are estimated to be $130K per year. Is the library economically justified? Write a brief interpretation of your answerarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License