Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Question
Chapter 26, Problem 8E
(a)
To determine
Compute the expected annual net
(b)
To determine
Compute the
(c)
To determine
Explain if investment in additional truck based on net present value be a good decision.
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AM Express Inc. is considering the purchase of an additional delivery vehicle for $43,000 on January 1, 20Y1. The truck is expected to have a 5-year life with an expected residual value of $7,000 at the end of 5 years. The expected additional revenues from the added delivery capacity are anticipated to be $59,000 per year for each of the next 5 years. A driver will cost $42,000 in 20Y1, with an expected annual salary increase of $3,000 for each year thereafter. The annual operating costs for the truck are estimated to be $2,000 per year.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
5
0.747
0.621
0.567
0.497
0.402
6
0.705
0.564
0.507
0.432
0.335
7
0.665
0.513
0.452
0.376
0.279
8
0.627
0.467
0.404
0.327
0.233
9
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
a. Determine the expected annual net…
Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $70,000 onJanuary 1, 20Y1. The truck is expected to have a five-year life with an expected residual valueof $15,000 at the end of five years. The expected additional revenues from the added deliverycapacity are anticipated to be $65,000 per year for each of the next five years. A driver will cost$40,000 in 20Y1, with an expected annual salary increase of $2,000 for each year thereafter. The annual operating costs for the truck are estimated to be $6,000 per year.a. Determine the expected annual net cash flows from the delivery truck investment for 20Y1–20Y5.b. Compute the net present value of the investment, assuming that the minimum desired rate of returnis 12%. Use the present value table appearing in Exhibit 2 of this chapter.c. Is the additional truck a good investment based on your analysis? Explain.
A utility company is considering the following plans to provide certain service required by the present demand and the perspective growth of demand for the coming 18 yearsPlan R required immediate investment of P500,000 in property that has an estimated life of 18 years and with 20% terminal salvage value. Annual disbursements for operation and maintenance will be P50,000. Annual property taxes will be 2% of first cost.Plan S requires an immediate investment of P300,000 in property that has an estimated life of 18 years with 20% terminal salvage value. Annual disbursements for the operation and maintenance during the first 6 years will be P40,000. After 6 years, an additional investment of P400,000 will be required in property having an estimated life of 12 years with 40% terminal salvage value. After this additional property is installed, annual disbursement for operation and maintenance of the combined property will be P60,000. Annual property taxes will be 2% of the first cost of…
Chapter 26 Solutions
Financial And Managerial Accounting
Ch. 26 - What are the principal objections to the use of...Ch. 26 - Discuss the principal limitations of the cash...Ch. 26 - Why would the average rate of return differ from...Ch. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQCh. 26 - Prob. 7DQCh. 26 - Two projects have an identical net present value...Ch. 26 - Prob. 9DQCh. 26 - What are the major disadvantages of the use of the...
Ch. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Average rate of return Determine the average rate...Ch. 26 - Cash payback period A project has estimated annual...Ch. 26 - Prob. 3BECh. 26 - Internal rate of return A project is estimated to...Ch. 26 - Net present valueunequal lives Project 1 requires...Ch. 26 - Average rate of return The following data are...Ch. 26 - Average rate of returncost savings Maui...Ch. 26 - Average rate of returnnew product Hana Inc. is...Ch. 26 - Determine cash flows Natural Foods Inc. is...Ch. 26 - Prob. 5ECh. 26 - Cash payback method Lily Products Company is...Ch. 26 - Prob. 7ECh. 26 - Prob. 8ECh. 26 - Net present value methodannuity for a service...Ch. 26 - Net present value methodannuity Jones Excavation...Ch. 26 - Prob. 11ECh. 26 - Prob. 12ECh. 26 - Net present value method and present value index...Ch. 26 - Average rate of return, cash payback period, net...Ch. 26 - Prob. 15ECh. 26 - Internal rate of return method The internal rate...Ch. 26 - Prob. 17ECh. 26 - Internal rate of return methodtwo projects Munch N...Ch. 26 - Net present value method and internal rate of...Ch. 26 - Identify error in capital investment analysis...Ch. 26 - Prob. 21ECh. 26 - Prob. 22ECh. 26 - Prob. 1PACh. 26 - Cash payback period, net present value method, and...Ch. 26 - Prob. 3PACh. 26 - Net present value method, internal rate of return...Ch. 26 - Alternative capital investments The investment...Ch. 26 - Capital rationing decision for a service company...Ch. 26 - Prob. 1PBCh. 26 - Prob. 2PBCh. 26 - Net present value method, present value index, and...Ch. 26 - Net present value method, internal rate of return...Ch. 26 - Prob. 5PBCh. 26 - Clearcast Communications Inc. is considering...Ch. 26 - San Lucas Corporation is considering investment in...Ch. 26 - Assume San Lucas Corporation in MAD 26-1 assigns...Ch. 26 - Prob. 3MADCh. 26 - Prob. 4MADCh. 26 - Home Garden Inc. is considering the construction...Ch. 26 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 26 - Ethics in Action Danielle Hastings was recently...Ch. 26 - Prob. 4TIFCh. 26 - Prob. 5TIFCh. 26 - Prob. 6TIFCh. 26 - Foster Manufacturing is analyzing a capital...Ch. 26 - Staten Corporation is considering two mutually...Ch. 26 - Prob. 3CMACh. 26 - Prob. 4CMA
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