Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 21, Problem 21.22E
Capital budgeting methods, no income taxes. Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is:
| Cost of the machine | $80,000 |
| Increased annual contribution margin | $15,000 |
| Life of the machine | 10 years |
| Required |
6% |
Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all
- 1. Calculate the following for the new machine:
Required
- a.
Net present value - b. Payback period
- c. Discounted payback period
- d.
Internal rate of return (using the interpolation method) - e. Accrual accounting rate of return based on the net initial investment (assume straight-line depreciation)
- 2. What other factors should Yummy Candy consider in deciding whether to purchase the new machine?
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. Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is:
Cost of the machine $80,000
Increased annual contribution margin $15,000
Life of the machine 10 years
Required rate of return 6%
Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts.
Q. Calculate the Internal rate of return (using the interpolation method) for the new machine
. Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is:
Cost of the machine $80,000
Increased annual contribution margin $15,000
Life of the machine 10 years
Required rate of return 6%
Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts.
Q. Calculate the Payback period for the new machine
. Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is:
Cost of the machine $80,000
Increased annual contribution margin $15,000
Life of the machine 10 years
Required rate of return 6%
Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts.
Q.Accrual accounting rate of return based on the net initial investment (assume straight-line depreciation)
Chapter 21 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 21 - Capital budgeting has the same focus as accrual...Ch. 21 - List and briefly describe each of the five stages...Ch. 21 - Prob. 21.3QCh. 21 - Only quantitative outcomes are relevant in capital...Ch. 21 - How can sensitivity analysis be incorporated in...Ch. 21 - Prob. 21.6QCh. 21 - Describe the accrual accounting rate-of-return...Ch. 21 - Prob. 21.8QCh. 21 - Lets be more practical. DCF is not the gospel....Ch. 21 - All overhead costs are relevant in NPV analysis....
Ch. 21 - Prob. 21.11QCh. 21 - Distinguish different categories of cash flows to...Ch. 21 - Prob. 21.13QCh. 21 - How can capital budgeting tools assist in...Ch. 21 - Distinguish the nominal rate of return from the...Ch. 21 - A company should accept for investment all...Ch. 21 - Prob. 21.17MCQCh. 21 - Which of the following statements is true if the...Ch. 21 - Prob. 21.19MCQCh. 21 - Nicks Enterprises has purchased a new machine tool...Ch. 21 - Prob. 21.21ECh. 21 - Capital budgeting methods, no income taxes. Yummy...Ch. 21 - Capital budgeting methods, no income taxes. City...Ch. 21 - Prob. 21.24ECh. 21 - Capital budgeting with uneven cash flows, no...Ch. 21 - Comparison of projects, no income taxes. (CMA,...Ch. 21 - Payback and NPV methods, no income taxes. (CMA,...Ch. 21 - DCF, accrual accounting rate of return, working...Ch. 21 - Prob. 21.29ECh. 21 - Prob. 21.30ECh. 21 - Project choice, taxes. Klein Dermatology is...Ch. 21 - Prob. 21.32ECh. 21 - Selling a plant, income taxes. (CMA, adapted) The...Ch. 21 - Prob. 21.36PCh. 21 - NPV and AARR, goal-congruence issues. Liam...Ch. 21 - Payback methods, even and uneven cash flows. Sage...Ch. 21 - Replacement of a machine, income taxes,...Ch. 21 - Recognizing cash flows for capital investment...Ch. 21 - NPV, inflation and taxes. Fancy Foods is...Ch. 21 - NPV of information system, income taxes. Saina...
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