Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
6th Edition
ISBN: 9780134486857
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 26, Problem 1TIATC
1.
To determine
Calculate the payback period for the given investment of Company T.
2.
To determine
Explain the disadvantages of payback method, and explain the reason why the company does not use the payback method as their sole method for making capital investment decisions.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Hoosier Corporation is an entertainment company that produces and distributes digital content and operates its own amusement parks. The company is looking into expanding into a new market, Hoosiersville. There are several projects the CEO considers investing in to capture the values brought by the market. One project for consideration is an improvement to the existing amusement park in Hoosierville.
If the project gets approved, the company expects an annual sale of $19.6 million from ticket sales, food, and concessions at the park, with an expected growth of 2.5% annually for a project life of 8 years. The annual operating expenses are expected to be 34% of sales, and the working capital (needed immediately) is expected to be 10% of the next year’s sales. The Tax Rate is 21%
In addition, the CEO determines that the new park will need to buy a new rollercoaster which will have a $3 million upfront cost. The rollercoaster will be depreciated straight-line for eight years to an…
Starplus Limited is well known for its focus on customer satisfaction and this is highlighted in the company
profile. Their “About Us” page on their website tells a story of service and growth, all centred around their
customers. This, combined with the excellent quality products offered, has contributed to its success in
the marketplace. At the end of 2022 the fixed assets (at carrying value) totalled R5 300 000, inventories
amounted to R5 200 000, R2 100 000 was owed by trade debtors, cash in the bank amounted to
R400 000, the ordinary share capital balance was R4 500 000, the accumulated undistributed profits
amounted to R1 700 000, an amount of R5 900 000 was owed to Zap Bank in respect of a long-term loan
and R900 000 was owed to the trade creditors. The sales of Starplus Limited for 2022 amounted to
R8 000 000.
The following projections are forecasts were made for 2023:
Machinery with a cost price of R1 000 000 and accumulated depreciation of R1 000 000 is expected to be…
Starplus Limited is well known for its focus on customer satisfaction and this is highlighted in the company profile. Their “About Us” page on their website tells a story of service and growth, all centred around their customers. This, combined with the excellent quality products offered, has contributed to its success in the marketplace. At the end of 2022 the fixed assets (at carrying value) totalled R5 300 000, inventories amounted to R5 200 000, R2 100 000 was owed by trade debtors, cash in the bank amounted to R400 000, the ordinary share capital balance was R4 500 000, the accumulated undistributed profits amounted to R1 700 000, an amount of R5 900 000 was owed to Zap Bank in respect of a long-term loan and R900 000 was owed to the trade creditors. The sales of Starplus Limited for 2022 amounted toR8 000 000.The following projections are forecasts were made for 2023:Machinery with a cost price of R1 000 000 and accumulated depreciation of R1 000 000 is expected to be scrapped at…
Chapter 26 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
Ch. 26 - Match the following business activities to the...Ch. 26 - Match the following business activities to the...Ch. 26 - Prob. 3TICh. 26 - Prob. 4TICh. 26 - Prob. 5TICh. 26 - Match the following business activities to the...Ch. 26 - Prob. 7TICh. 26 - Prob. 8TICh. 26 - Prob. 9TICh. 26 - Based on your answers to the above questions,...
Ch. 26 - Prob. 11TICh. 26 - Prob. 12TICh. 26 - Prob. 13TICh. 26 - What is the NPV of the project?Ch. 26 - Prob. 15TICh. 26 - Prob. 16TICh. 26 - What is the second step of capital budgeting? a....Ch. 26 - Which of the following methods does not consider...Ch. 26 - Suppose Francine Dunkelbergs Sweets is considering...Ch. 26 - Your rich aunt has promised to give you 2,000 per...Ch. 26 - Prob. 5QCCh. 26 - Prob. 6QCCh. 26 - In computing the IRR on an expansion at Mountain...Ch. 26 - Prob. 8QCCh. 26 - Which of the following is the most reliable method...Ch. 26 - Prob. 10QCCh. 26 - Explain the difference between capital assets,...Ch. 26 - Describe the capital budgeting process.Ch. 26 - What is capital rationing?Ch. 26 - Prob. 4RQCh. 26 - Prob. 5RQCh. 26 - List some common cash outflows from capital...Ch. 26 - What is the payback method of analyzing capital...Ch. 26 - Prob. 8RQCh. 26 - Prob. 9RQCh. 26 - Prob. 10RQCh. 26 - What are some criticisms of the payback method?Ch. 26 - What is the accounting rate of return?Ch. 26 - How is ARR calculated?Ch. 26 - What is the decision rule for ARR?Ch. 26 - Prob. 15RQCh. 26 - What is an annuity? How does it differ from a lump...Ch. 26 - Prob. 17RQCh. 26 - Explain the difference between the present value...Ch. 26 - Prob. 19RQCh. 26 - Prob. 20RQCh. 26 - Prob. 21RQCh. 26 - Prob. 22RQCh. 26 - What is the decision rule for NPV?Ch. 26 - What is the profitability index? When is it used?Ch. 26 - What is the internal rate of return?Ch. 26 - Prob. 26RQCh. 26 - Prob. 27RQCh. 26 - What is the decision rule for IRR?Ch. 26 - Prob. 29RQCh. 26 - Why should both quantitative and qualitative...Ch. 26 - Review the following activities of the capital...Ch. 26 - Carter Company is considering three investment...Ch. 26 - Carter Company is considering three investment...Ch. 26 - Consider how Hunter Valley Snow Park Lodge could...Ch. 26 - Consider how Hunter Valley Snow Park Lodge could...Ch. 26 - Prob. 6SECh. 26 - Consider how Hunter Valley Snow Park Lodge could...Ch. 26 - Suppose Hunter Valley is deciding whether to...Ch. 26 - Prob. 9SECh. 26 - Prob. 10SECh. 26 - Prob. 11SECh. 26 - Refer to the Hunter Valley Snow Park Lodge...Ch. 26 - Consider how Hunter Valley Snow Park Lodge could...Ch. 26 - Prob. 14SECh. 26 - Prob. 15SECh. 26 - Match each capital budgeting method with its...Ch. 26 - Fill in each statement with the appropriate...Ch. 26 - Prob. 18ECh. 26 - Prob. 19ECh. 26 - Prob. 20ECh. 26 - Prob. 21ECh. 26 - Prob. 22ECh. 26 - Prob. 23ECh. 26 - Holmes Industries is deciding whether to automate...Ch. 26 - Use the NPV method to determine whether Hawkins...Ch. 26 - Refer to the data regarding Hawkins Products in...Ch. 26 - Hudson Manufacturing is considering three capital...Ch. 26 - Prob. 28ECh. 26 - You are planning for a very early retirement. You...Ch. 26 - Splash Nation is considering purchasing a water...Ch. 26 - Hill Company operates a chain of sandwich shops....Ch. 26 - Henderson Manufacturing, Inc. has a manufacturing...Ch. 26 - Hayes Company is considering two capital...Ch. 26 - You are planning for an early retirement. You...Ch. 26 - Water City is considering purchasing a water park...Ch. 26 - Howard Company operates a chain of sandwich shops....Ch. 26 - Hughes Manufacturing, Inc. has a manufacturing...Ch. 26 - Prob. 38BPCh. 26 - Prob. 39PCh. 26 - This problem continues the Piedmont Computer...Ch. 26 - Darren Dillard, majority stockholder and president...Ch. 26 - Prob. 1TIATCCh. 26 - Spencer Wilkes is the marketing manager at Darby...Ch. 26 - Prob. 1FCCh. 26 - Prob. 1CA
Knowledge Booster
Similar questions
- Starplus Limited is well known for its focus on customer satisfaction and this is highlighted in the company profile. Their “About Us” page on their website tells a story of service and growth, all centred around their customers. This, combined with the excellent quality products offered, has contributed to its success in the marketplace. At the end of 2022 the fixed assets (at carrying value) totalled R5 300 000, inventories amounted to R5 200 000, R2 100 000 was owed by trade debtors, cash in the bank amounted to R400 000, the ordinary share capital balance was R4 500 000, the accumulated undistributed profits amounted to R1 700 000, an amount of R5 900 000 was owed to Zap Bank in respect of a long-term loan and R900 000 was owed to the trade creditors. The sales of Starplus Limited for 2022 amounted toR8 000 000.The following projections are forecasts were made for 2023:Machinery with a cost price of R1 000 000 and accumulated depreciation of R1 000 000 is expected to be scrapped at…arrow_forwardCan you help me answer this with a step by step explanation and display any formulas used.? There is a firm, which we are prospecting as a purchase candidate. It has the following features we find attractive. First, it will enable us to sell to the clients of this firm what we already are selling our existing clients. The revenue addition will be $12 million. However, it will induce $3 million more expenses in attaining that higher level of revenue. Secondly, it will enable us to sell a division of the firm that does not rally connect with our operations for $5 million. Thirdly, since there is a lot of repetition of positions ( we are in the same line of business) we can lay off 50 employees permanently. The average salary of those employees is $60,000. The coc of the firm is 10%. Calculate the amount that we can bid to acquire this company.arrow_forwardBoswell Manufacturing Company has been in business for five years. Thecompany has now decided to expand its operations. To finance this process, the company is considering two approaches: (1) Lease the assets that are needed on a long term basis or (2) Issue bonds and use the proceeds to purchase the assets. The CEO is seeking your advice on the matter. Without knowledge of the comparative cost involved, how would you advise him in the following questions: (i) What might be the advantages and disadvantages of leasing the assetsinstead of owning them. (List at least three advantages and threedisadvantages) (ii) How will leasing the assets instead of owning them affect the financialstatements?arrow_forward
- Macro Hardware Limited manufactures two types of products, a laptop and an iPod and sells them in a very competitive market. Both products are funky light-weight products that are designed for the 15- to 25-year-old age group market. Due to the popularity of their products, Macro Hardware Limited is considering expanding into different target markets during the next financial year that commences on 1 July 2022. However, management wish to first evaluate the risk and expected profitability of the existing target market for 2022 before embarking on these new endeavours. Management has requested that the financial accountant collect all the relevant financial information relating to the two products for the 2022 financial year and prepare a budget for them for 2023. The financial accountant is not sure how to allocate some of the cost between the two products, but all the other relevant budget information relating to the two products for the financial year ending 30 June 2022 is…arrow_forwardMacro Hardware Limited manufactures two types of products, a laptop and an iPod and sells them in a very competitive market. Both products are funky light-weight products that are designed for the 15-to 25-year-old age group market. Due to the popularity of their products, Macro Hardware Limited is considering expanding into different target markets during the next financial year that commences on 1 July 2022. However, management wish to first evaluate the risk and expected profitability of the existing target market for 2022 before embarking on these new endeavours. Management has requested that the financial accountant collect all the relevant financial information relating to the two products for the 2022 financial year and prepare a budget for them for 2023. The financial accountant is not sure how to allocate some of the cost between the two products, but all the other relevant budget information relating to the two products for the financial year ending 30 June 2022 is summarised…arrow_forwardZenith Investment Company is considering the purchase of an office property. It has done an extensive market analysis and has estimated that based on current market supply/demand relationships, rents, and its estimate of operating expenses, annual NOI will be as follows:Year NOI1 $1,000,0002 1,000,0003 1,000,0004 1,200,0005 1,250,0006 1,300,0007 1,339,0008 1,379,170A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,000,000. During years 4, 5, and 6, market rents are expected to be higher. It is further expected that beginning in year 7 and every year thereafter, NOI will tend to reflecta stable, balanced market and…arrow_forward
- May I ask for an explanation and solution to the question for a better understanding. Thank you! 1. The owners would like to know what reasons caused the current performance of the company and ask your opinion. Through review of the complete records you were able to obtain this additional information: (1) The selling price for every unit is P7.20 during 2018 and; (2) The marketing department did a tremendous job and was able to increase sales units by 20% during 2019. The increase (decrease) in gross profit because of the change in units sold is: a. P(4,320) b. P5,400 c. P14,400 d. P23,400arrow_forwardJoe Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc. to dispense frozen yogurt products under the name The Yogurt Place. Swanson has assembled the following information relating to the franchise: a. A suitable location in a large shopping mall can be rented for $5,480 per month. b. Remodelling and necessary equipment would cost $337,500. The equipment would have a 15-year life and an $10,500 salvage value. Straight-line depreciation would be used. c. On the basis of similar outlets elsewhere, Swanson estimated that sales would total $440,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $143,500 per year for salaries, $5,600 per year for insurance, and $30,500 per year for utilities. In addition, Swanson would have to pay a commission to The Yogurt Place of 12.5% of sales. Required: 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. Deduct:…arrow_forwardCurrent Attempt in Progress Your answer is partially correct. Vaughn Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,865,700. An immediate down payment of $415,500 is required, and the remaining $1,450,200 would be paid off over 5 years at $369,000 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $508,900. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) Insurance (to be paid at the beginning of each year) Other (primarily maintenance which…arrow_forward
- Zenith Investment Company is considering the purchase of an office property. It has done an extensive market analysis and has estimated that based on current market supply or demand relationships, rents, and its estimate of operating expenses, annual NOI will be as follows: Year NOI 1 $ 1,030,000 2 1,030,000 3 1,030,000 4 1,210,000 5 1,260,000 6 1,310,000 7 1,349,000 8 1,389,170 A market that is currently oversupplied is expected to result in cash flows remaining flat for the next three years at $1,030,000. During years 4, 5, and 6, market rents are expected to be higher. It is further expected that beginning in year 7 and every year thereafter, NOI will tend to reflect a stable, balanced market and should grow at 3 percent per year indefinitely. Zenith believes that investors should earn a 12 percent return (r) on an investment of this kind.Required: a. Assuming that the investment is expected to produce NOI in years 1 to 8 and is expected to be owned for…arrow_forwardPaul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense frozenyogurt products under The Yogurt Place name. Mr. Swanson has assembled the following informationrelating to the franchise:a. A suitable location in a large shopping mall can be rented for $3,500 per month.b. Remodeling and necessary equipment would cost $270,000. The equipment would have a 15-yearlife and an $18,000 salvage value. Straight-line depreciation would be used, and the salvage valuewould be considered in computing depreciation.c. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $300,000 per year.Ingredients would cost 20% of sales.d. Operating costs would include $70,000 per year for salaries, $3,500 per year for insurance, and$27,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to TheYogurt Place, Inc., of 12.5% of sales.Required:(Ignore income taxes.)1. Prepare a contribution format income statement that…arrow_forward(Financing Ongoing Operations Part 1) Case Study Dakki Corp. has been in the Textile industry for five years, offering a wide variety of local silk, linens, and different kinds of fabrics. They now have five manufacturing plant locations in major cities nationwide and plan to expand their operations in three years. For 2022, their financial projection shows that they need a working capital of P8,000,000 pesos to support their operations. To carry out this plan, they need to look for other external sources to fund thelacking P500,000. They have the following option:1. Selling a machine used in Operations worth P800,000, which was bought last January 1, 2020. It has a useful life of 10 years and has no residual value. The Company has a 25% tax rate and Cost of capital 10%. The Company expected to sell the equipment forP650,000 in December 2021.2. The Company was approved to have a short-term loan at Philippine National Bank (PNB) at 6% annual interest.3. Sale of an old building owned by…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 LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning