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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Textbook Question
Chapter 21, Problem 21.23E
Capital budgeting methods, no income taxes. City Hospital, a nonprofit organization, estimates that it can save $28,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $110,000. No terminal disposal value is expected. City Hospital’s required
- 1. Calculate the following for the special-purpose eye-testing machine:
Required
- a.
Net present value - b. Payback period
- c.
Internal rate of return - d. Accrual accounting rate of return based on net initial investment
- e. Accrual accounting rate of return based on average investment
- 2. What other factors should City Hospital consider in deciding whether to purchase the special-purpose eye-testing machine?
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Chicago Hospital, a taxpaying entity, estimates that it can save $30,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $135,000. No terminal disposal value is expected. Chicago Hospital's
required rate of return is 10%. Assume all cash flows occur at year-end except for initial investment amounts. Chicago Hospital uses straight-line depreciation. The income tax rate is 34% for all transactions that affect income taxes.
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Read the requirements.
Requirement 1. Calculate the following for the special-purpose eye-testing machine:
Net present value (NPR) (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a…
MaxiCare Corporation, a not-for-profit organization, specializes in health care for senior citizens. Management is considering whether
to expand operations by opening a new chain of care centers in the inner city of large metropolitan areas. For a new facility, initial cash
outlays for lease, renovations, net working capital, training, and other costs are expected to be about $15 million. The corporation
expects the cash inflows of each new facility in Year 1 to equal zero. Net cash inflows are expected to increase to $1 million in each of
years 2 and 3; $2.5 million in year 4; and $3 million in each of years 5 through 10. The lease agreement for the facility will expire at the
end of year 10, and MaxiCare expects the cost to close a facility will pretty much exhaust all cash proceeds from the disposal. Cost of
capital for MaxiCare is estimated as 12%. Assume that all cash flows occur at year end.
Required:
1. Compute (using the built-in NPV function in Excel) the net present value…
Capital budgeting methods, no income taxes. City Hospital, a nonprofit organization, estimates that it can save $28,000 ayear in cash operating costs for the next 10 years if it buys a special-purpose eyetesting machine at a cost of $110,000. Noterminal disposal value is expected. City Hospital’s required rate of return is 14%. Assume all cash ows occur at year-endexcept for initial investment amounts. City Hospital uses straight-line depreciation.1. Calculate the following for the special-purpose eye-testing machine:a. Net present valueb. Payback periodc. Internal rate of returnd. Accrual accounting rate of return based on net initial investmente. Accrual accounting rate of return based on average investment2. What other factors should City Hospital consider in deciding whether to purchase the special-purpose eye-testingmachine?
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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