Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 2, Problem 37P
To determine
Write a reply to the client’s request.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Coyle Pharmaceuticals produces two chemicals (Chem AB, and Chem XY) used in the production of two of its most wide-selling anti-cancer drugs. Coyle Pharmaceuticals has recently received significant criticism from environmental groups, local residents, and the federal government concerning its environmental performance. The CEO of the company wants to know which product is the main source of the environmental problems. The Management Accountant has assembled the following data to help answer this question:
Chem AB
Chem XY
Pounds of fertilizer produced
6,000,000
5,000,000
Pounds of scrap recycled
80,000
20,000
Packaging materials (kilograms)
2,400,000
1,200,000
Energy usage (kilowatt hours)
800,000
400,000
Engineering hours (process design)
18,000
12,000
Pollution control (machine hours)
300,000
75,000
Pounds of solid residues treated
90,000
30,000
Inspection hours (environmental)
30,000
15,000
Cleanup…
You are a manager at Northem Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.3 million for this report,
and I am not sure their analysis makes sense. Before we spend the $24 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars):
2
10
Sales revenue
29.000
17.400
29.000
29.000
29.000
- Cost of goods sold
= Gross profit
- General, sales, and administrative expenses
- Depreciation
= Net operating income
17.400
17.400
17.400
11.600
1.920
2.400
11.600
11.600
11.600
1.920
1.920
1.920
2.400
2.400
2.400
7.2800
7.2800
7.2800
7.2800
- Income tax
2.548
2.548
2.548
2.548
= Net income
4.732
4.732
4.732
4.732
All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…
You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.2 million for this report, and I am not sure their analysis makes sense. Before we spend the $19 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars):
All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended. The report concludes that because the project will increase earnings by $6.864 million per year for ten years, the project is worth $68.64 million. You think back to your halcyon days in finance class and realize there is more work to be done!
First,…
Chapter 2 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Prob. 10RQ
Ch. 2 - Prob. 11RQCh. 2 - Prob. 12RQCh. 2 - Prob. 13RQCh. 2 - Prob. 14RQCh. 2 - Prob. 15RQCh. 2 - Prob. 16RQCh. 2 - Prob. 17RQCh. 2 - Prob. 18RQCh. 2 - Prob. 19RQCh. 2 - Prob. 20RQCh. 2 - Prob. 21RQCh. 2 - Prob. 22RQCh. 2 - Prob. 23RQCh. 2 - Prob. 24RQCh. 2 - Prob. 25QRACh. 2 - Prob. 26QRACh. 2 - Jane Lee, a director of a nonpublic corporation...Ch. 2 - Prob. 28QRACh. 2 - Prob. 29QRACh. 2 - Prob. 30AOQCh. 2 - Prob. 30BOQCh. 2 - Prob. 30COQCh. 2 - Prob. 30DOQCh. 2 - Prob. 30EOQCh. 2 - Prob. 30FOQCh. 2 - Prob. 30GOQCh. 2 - Prob. 30HOQCh. 2 - Prob. 30IOQCh. 2 - Prob. 30JOQCh. 2 - Prob. 30KOQCh. 2 - Prob. 30LOQCh. 2 - Prob. 31OQCh. 2 - Prob. 32OQCh. 2 - Prob. 33OQCh. 2 - Prob. 34OQCh. 2 - Prob. 35OQCh. 2 - Joe Rezzo, a college student majoring in...Ch. 2 - Prob. 37PCh. 2 - Hide-It (HI), a family-owned business based in...Ch. 2 - Prob. 39RDC
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
- You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.9 million for this report, and I am not sure their analysis makes sense. Before we spend the $18 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 34.000 20.400 13.600 1.440 1.800 10.360 2.072 Project Year 2 34.000 20.400 13.600 1.440 1.800 10.360 2.072 9 34.000 20.400 13.600 1.440 1.800 10.360 2.072 10 34.000 20.400 13.600 1.440 1.800 10.360 2.072 a. Given the available information, what are the free cash…arrow_forwardYou are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.7 million for this report, and I am not sure their analysis makes sense. Before we spend the $28.3 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Project Year Earnings Forecast 1 2 9 10 Sales Revenue 30.000 30.000 30.000 30.000 Cost of Goods Sold 18.000 18.000 18.000 18.000 - = Gross Profit 12.000 12.000 12.000 12.000 - General, Sales and Administrative Expenses - Depreciation 2.264 2.264 2.264 2.264 2.830 2.830 2.830 2.830 = Net Operating Income 6.906 6.906 6.906 6.906 - Income Tax 2.417 2.417 2.417 2.417 = Net Income 4.489 4.489 4.489 4.489 ... a. Given the available information, what are the free cash flows in years 0 through 10…arrow_forwardYou are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $22 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new equipment that will be purchased today (year 0), which is what the accounting department recommended. The report concludes that because the project will increase earnings by $5.472 million per year for ten years, the project is worth $54.72 million. You think back to your halcyon days in finance class and realize there is more work to be done! First,…arrow_forward
- You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $ 1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $ 29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Project Year Earnings Forecast ($ million) 1 2 . . . 9 10 Sales revenue 28.00028.000 28.00028.000 28.00028.000 28.00028.000 minus−Cost of goods sold 16.80016.800 16.80016.800 16.80016.800 16.80016.800 equals=Gross profit 11.20011.200 11.20011.200 11.20011.200 11.20011.200 minus−Selling, general, and administrative expenses 2.3202.320 2.3202.320 2.3202.320 2.3202.320…arrow_forwardYou are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.4 million for this report, and I am not sure their analysis makes sense. Before we spend the $28 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 31.000 18.600 12.400 2.240 2.800 7.360 1.472 2 31.000 18.600 12.400 2.240 2.800 7.360 1.472 9 31.000 18.600 12.400 2.240 2.800 7.360 1.472 10 31.000 18.600 12.400 2.240 2.800 7.360 1.472 a. Given the available information, what are the free cash flows…arrow_forwardYou are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.2 million for this report, and I am not sure their analysis makes sense. Before we spend the $29 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax 1 25.000 15.000 10.000 2.320 2.900 4.780 1.434 2 25.000 15.000 10.000 2.320 2.900 4.780 1.434 9 25.000 15.000 10.000 2.320 2.900 4.780 1.434 10 25.000 15.000 10.000 2.320 2.900 4.780 1.434 a. Given the available information, what are the free cash flows in…arrow_forward
- You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.3 million for this report, and I am not sure their analysis makes sense. Before we spend the $18 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax = Net income 1 2 35.000 35.000 21.000 21.000 14.000 14.000 1.440 1.440 1.800 1.800 10.760 10.760 3.766 3.766 6.994 6.994 9 35.000 21.000 14.000 1.440 1.800 10.760 3.766 6.994 10 35.000 21.000 14.000 1.440 1.800 10.760 3.766 6.994 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…arrow_forwardYou are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.1 million for this report, and I am not sure their analysis makes sense. Before we spend the $20 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income Income tax = Net income 1 26.000 15.600 2 26.000 15.600 10.400 10.400 1.600 1.600 2.000 2.000 6.800 2.38 4.420 6.800 2.38 4.420 ... 9 26.000 15.600 10.400 1.600 2.000 6.800 2.38 4.420 10 26.000 15.600 10.400 1.600 2.000 6.800 2.38 4.420 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the new…arrow_forwardK You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.5 million for this report, and I am not sure their analysis makes sense. Before we spend the $21 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue -Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income Income tax = Net income 1 30.000 18.000 2 30.000 18.000 12.000 12.000 1.680 1.680 2.100 2.100 8.2200 2.877 8.2200 2.877 5.343 5.343 ... 9 30.000 18.000 12.000 1.680 2.100 8.2200 2.877 5.343 10 30.000 18.000 12.000 1.680 2.100 8.2200 2.877 5.343 *** b. If the cost of capital for this project is 15%, what is your estimate of the value of the new project? Value…arrow_forward
- You are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.8 million for this report, and I am not sure their analysis makes sense. Before we spend the $19 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax = Net income 1 2 25.000 25.000 15.000 15.000 10.000 10.000 1.520 1.520 1.900 1.900 6.5800 2.303 4.277 6.5800 2.303 4.277 9 25.000 15.000 10.000 1.520 1.900 6.5800 2.303 4.277 10 25.000 15.000 10.000 1.520 1.900 6.5800 2.303 4.277 All of the estimates in the report seem correct. You note that the consultants used straight-line depreciation for the…arrow_forwardYou are a manager at Northern Fibre, which is considering expanding its operations in synthetic fibre manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.8 million for this report, and I am not sure their analysis makes sense. Before we spend the $17 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): Sales revenue Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income - Income tax = Net income 1 30.000 18.000 12.000 1.360 1.700 8.9400 8.9400 3.129 3.129 5.811 5.811 2 30.000 18.000 12.000 1.360 1.700 9 30.000 18.000 12.000 1.360 1.700 8.9400 3.129 5.811 10 30.000 18.000 12.000 1.360 1.700 8.9400 3.129 5.811 b. If the cost of capital for this project is 9%, what is your estimate of the value of the new project? Value of project…arrow_forwardYou are a manager at Percolated Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your office, drops a consultant's report on your desk, and complains, "We owe these consultants $1.0 million for this report, and I am not sure their analysis makes sense. Before we spend the $25 million on new equipment needed for this project, look it over and give me your opinion." You open the report and find the following estimates (in millions of dollars): (Click on the following icon in order to copy its contents into a spreadsheet.) Project Year Sales revenue - Cost of goods sold = Gross profit - General, sales, and administrative expenses - Depreciation = Net operating income 1 30.000 18.000 12.000 2.000 2.500 7.500 2 30.000 18.000 12.000 2.000 2.500 7.500 9 30.000 18.000 12.000 2.000 2.500 7.500 10 30.000 18.000 12.000 2.000 2.500 7.500 a. Given the available information, what are the free cash flows in years 0 through 10 that should be…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning