FUNDAMENTALS OF COST ACCOUNTING W/CONNE
6th Edition
ISBN: 9781264199617
Author: LANEN/ANDERSON
Publisher: MCG
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Chapter A, Problem 14E
Present Value Analysis in Nonprofit Organizations
The Johnson Research Organization, a nonprofit organization that does not pay taxes, is considering buying laboratory equipment with an estimated life of seven years so it will not have to use outsiders’ laboratories for certain types of work. The following are all of the
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Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2022. For each investment proposal, the
relevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than being
fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The
firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.
Type of Capital
Budgeting Decision
OA. $34,400
OB. $66,400
1
Expansion
OC. $80,000
OD. $13,600
Type of Project
Cost of new asset
Installation costs
MACRS (new asset)
Original cost of old asset
Purchase date (old asset)
Sale proceeds (old asset)
MACRS (old asset)
Annual net profits before
depreciation & taxes (old)
Annual net profits before
depreciation & taxes (new)…
A company has just purchased a new delivery van. Now it is trying to decide whether to sell its old delivery van or donate it to a non-profit organization that delivers meals to the elderly. In estimating the incremental free cash flows for this decision, for which of the following should we adjust? Do not include factors that are only indirectly used to calculate other factors – only choose factors that should be directly considered, for their own sake, in the cash flow calculations (rather than in the calculation of another factor). For this particular problem, circle the letters of all of the answers that apply (i.e., you may choose to circle more than just one answer).
a. The cost of the new van.
b. The interest expense on the loan to buy the new van.
c. Any reputation effect/goodwill resulting from donating the van to a worthy charity.
d. The price that the company originally paid for the old van.
e. The book value of the old van.
f. The tax effect of donating…
Q.The Kuhl Brothers ask you whether they should buy the new machine. To help in your analysis, calculate the following:
1. Difference in after-tax cash flow from terminal disposal of new machine and old machine
Chapter A Solutions
FUNDAMENTALS OF COST ACCOUNTING W/CONNE
Ch. A - What are the two most important factors an...Ch. A - Prob. 2RQCh. A - Prob. 3RQCh. A - Prob. 4RQCh. A - Prob. 5RQCh. A - Prob. 6CADQCh. A - What are the four types of cash flows related to a...Ch. A - Is depreciation included in the computation of net...Ch. A - The total tax deduction for depreciation is the...Ch. A - Prob. 10CADQ
Ch. A - In Chapter 14, we discussed performance...Ch. A - Present Value of Cash Flows Star City is...Ch. A - Prob. 13ECh. A - Present Value Analysis in Nonprofit Organizations...Ch. A - Prob. 15ECh. A - What is the net present value of the investment...Ch. A - Prob. 17PCh. A - Sensitivity Analysis in Capital Investment...Ch. A - Compute Net Present Value Dungan Corporation is...
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