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 21.41P
NPV, inflation and taxes. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully
- 1. Given the preceding information, what is the
net present value of the new scales? Ignore taxes.Required
- 2. Assume the $30,000 cost savings are in current real dollars and the inflation rate is 4%. Recalculate the NPV of the project.
- 3. Based on your answers to requirements 1 and 2, should Fancy Foods buy the new meat scales?
- 4. Now assume that the company’s tax rate is 25%. Calculate the NPV of the project assuming no inflation.
- 5. Again assuming that the company faces a 25% tax rate, calculate the NPV of the project under an inflation rate of 4%.
- 6. Based on your answers to requirements 4 and 5, should Fancy Foods buy the new meat scales?
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NPV, ination and taxes. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return.
(Ignore income taxes in this problem.) Your Company uses a discount rate of 10%. The company has an opportunity to buy a machine now for $38,000 that will yield cash inflows of $10,000 per year for each of the next five years. The machine would have no salvage value. The net present value of this machine to the nearest whole dollar is:
If the NPV is negative, enter your number with a – in front. Otherwise, just enter the number.
The garden supply company is also considering taking out a loan and buying a small truck to save costs on deliveries. The truck costs $60000 and is expected to earn end of year after tax net cash inflows of $11000, $17000, $20000 and $20000 for the next four years before it wears out sufficiently to be unreliable and must be sold for an estimated $18000 (after tax).
a) Calculate the NPV of the truck if the interest rate on the loan is 4.0% pa.
Year
Transactions
Cost flow
PV Factor at 4%
Discounted cash flows
0
Cost
(60,000)
1
(60,000)
1
After-tax net cash inflows
11,000
0.9615
10,577
2
After-tax net cash inflows
17,000
0.9246
15,718
3
After-tax net cash inflows
20,000
0.8890
17,780
4
After-tax net cash inflows
20,000
0.8548
17,096
4
Realizable value after tax
18,000
0.8548
15,386…
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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Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License