FUNDAMENTALS OF COST ACCOUNTING W/CONNE
FUNDAMENTALS OF COST ACCOUNTING W/CONNE
6th Edition
ISBN: 9781264199617
Author: LANEN/ANDERSON
Publisher: MCG
Question
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Chapter A, Problem 17P

a.

To determine

Determine the annual accounting income increase or decrease on the basis of information given in the question.

b.

To determine

Determine whether or not machine acquisition have positive net present value or not.

c.

To determine

Comment on the computed results in accordance with the information given in the question.

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ABC is starting a new project. It will require new equipment costing 34. The project is expected to increase gross profits by 26 per year, starting at the end of the first year, with associated costs of 13 for each of those years. The machine is expected to have a working life of 7 years and will be depreciated over those 7 years. The marginal tax rate is 0.3. What are the incremental free cash flows associated with the new machine in year 2?
Stevie’s Sporting Goods is considering investing $33,000 in a new machine. The machine is expected to last five years and have a salvage value of $8,000. Annual after-tax net cash inflow from the machine is expected to be $7,000. Calculate the accounting rate of return (aka the unadjusted rate of return). (Enter your answer as a percentage rounded to one decimal place, but do NOT include the percentage sign. For example: 5 divided by 35 is 0.142857, which you would enter as “14.3”)
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