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accounting

Questions and Answers of Accounting

What discount rate yields a net present value of zero? How is it determined?
What is a company’s hurdle rate? How is it used?
How do quality and time considerations affect capital budgeting decisions?
Identify several qualitative factors, other than quality and time considerations, that may affect strategic and capital investment decisions. Why are qualitative factors important?
Which one of the following is not a reason why a company should carefully plan its capital investment decisions?a. Capital investments usually require a large initial outlay of capital.b. Capital
Which one of the following statements is correct?a. Screening is the process of finding the best among available acceptable alternatives.b. Ranking is the process of determining whether an investment
Compute the following present values:a. Present value of $8,000 to be received 15 years from now. The appropriate interest rate is 12%.b. Present value of $3,000 to be received at the end of each
J.H. Physical Therapy Equipment, Inc., is deciding whether to invest in a certain capital investment. The investment requires an initial outlay of $55,000 and annual payments of $12,000 made at the
Refer to the data in PE 23-4. J.H. expects the new investment will generate revenues of $24,000 per year for the five years of the investment’s life. At the end of the four years, the company
Casper Company paid $25,000 cash for a capital investment. The company expects the investment to generate net cash inflows of $5,500 per year. What is the payback period of this investment?
Refer to the data in PE 23-6. What is the unadjusted rate of return on the investment? Note: The investment is expected to have a useful life of 10 years, and Casper uses straight-line depreciation
Thirty-five percent of R.B.H. Bicycle Corp.’s total capital is debt, 45% is from the issuance of stock, and 20% is equity from retained earnings. The company has determined that the cost of its
Which one of the following investment opportunities would be rejected by a company that accepts all projects with net present values greater than zero?a. Present value of inflows = $35,740; present
Stephen’s Brewing Company (SBC) is required to install a new piece of safety equipment. SBC has two alternatives for the equipment. One alternative would cost $260,000 immediately but would not add
Privyet Company is considering an eight-year investment. The initial cost of the investment is $57,466. The investment will yield net cash inflows of $10,000 per year. What is the internal rate of
David’s Robotics, Inc., is considering whether to invest in a project with an initial cost of $538,000 that will provide annual net cash inflows of $82,500 for 10 years. Use interpolation to
Patrick’s Army Supply is considering whether to invest in a piece of equipment that requires an investment of $250,000 today. The project will provide net cash flows of $50,000 per year for eight
Which one of the following is an important qualitative factor to consider when making strategic and capital investment decisions?a. Company image and prestige.b. Pollution control and environmental
Consider each part independently.1. Super-Fix Company would like to move its auto repair shop to a downtown location in order to attract more customers. What is the maximum Super-Fix should pay to
Your late, rich uncle left you $250,000. The executor of the estate has asked if you would rather receive the full amount now or $30,000 a year for the next 40 years. Which of these options would you
The manager of Simple Company must choose between two investments. Project A costs $125,000 and promises cash savings of $20,000 a year over a useful life of 10 years. Project B costs $60,000, and
Um Good, Inc., a candy maker, is thinking of purchasing a new machine. A marketing firm has estimated that the new machine could increase revenues by $25,000 a year for the next five years. The
The Carroll Broom Company is thinking of purchasing a new automatic straw-binding machine. The company president, Joan Carroll, has determined that such a machine would save the company $10,000 per
The local fire department has determined that the Sleep-Eazy Mattress Company is not in full compliance with local fire regulations. To comply, Sleep-Eazy has two alternatives: It may install an
Juan Gonzales, the president of Nogales Corporation, is trying to decide whether he should buy a new machine that will improve production efficiency. The machine will increase cash inflows $5,000 a
Daphney Corporation has raised $150,000 in equity financing through the issuance of shares. Stockholders expect to earn an average of 15% per year on their equity investment in Daphney. In addition,
A real estate investment requires an initial outlay of $200,000 in cash. The investment will return a single sum cash payment of $438,490 after five years. The rate of return required on projects as
A retired person has $700,000 in a retirement account. An insurance company is offering to give the retired person an annuity of $61,029 at the end of each year for the next 20 years in exchange for
Tucker Yard Service Company is contemplating purchasing a new riding lawnmower for its business. One particular model has special features that enhance the cutting and collecting of the mowed grass,
The Upscale Department Store has been plagued with shoplifting. The president, Hector Conrad, has suggested that the store hire a security force to “frisk” all customers as they leave the store.
A fast-food establishment is thinking of buying a new cooking grill and refrigeration unit. The costs of these new machines are $12,500 and $9,000, respectively. The installation costs of the new
Southside Junk Yard needs to buy a car smasher. The machine would add the following revenues to the business over the next three years:Year 1 Cash savings = $25,000Year 2 Cash savings plus additional
You have been offered the opportunity to purchase a franchise of Sunshine Juice Stores. You will have to pay $258,635 for the initial investment in the store and its equipment, plus $30,000 per year
Nina Roberts has the opportunity to invest in a timber forest. She would have to invest $100,000. Revenues of $20,000 per year are projected for 20 years. However, these revenues will not begin
Nucore Company is thinking of purchasing a new candy-wrapping machine at a cost of $370,000.The machine should save the company approximately $70,000 in operating costs per year over its estimated
The manager of Soft & Creamy Ice Cream is thinking of buying a new soft ice cream machine. The machine will cost $25,000 and will last 10 years. Soft ice cream sales are expected to generate
Tom Thurlow wants to buy a boat but is short of cash. Two alternatives are available: Tom can accept $5,000 per year from his brother for partial ownership in the boat, or he can earn money by
A small sales company is committed to supplying three sales representatives with new cars. The company has two alternatives. It can either buy the three cars and sell them after two years, or it can
As one aspect of its business, New Lawn Company currently rents a ditch-digging machine for an average of $35 per job. A used machine is available for $995 but would cost $200 to repair. The machine,
Clarence Gleason has inherited an apartment complex. He is now faced with the decision of whether to sell or to rent the property. A real estate adviser believes that Clarence should rent the
Julie Kowalis, an investment analyst, wants to know if her investments during the past four years have earned at least a 12% return. Four years ago, she had the following investments:a. She purchased
The management of Kitchen Shop is thinking of buying a new drill press to aid in adapting parts for different machines. The press is expected to save Kitchen Shop $16,000 per year in costs. However,
Campus Print Shop is thinking of purchasing a new, modern copier that automatically collates pages. The machine would cost $22,000 cash. A service contract on the machine, considered a must because
Yoshika Landscaping is contemplating purchasing a new ditch-digging machine that promises savings of $5,600 per year for 10 years. The machine costs $21,970, and no salvage value is expected.The
Which measurement is more important when making a capital budgeting decision, net present value or improved customer satisfaction?Your company is considering purchasing a server to host the company
Should a project be accepted or rejected if the project has an internal rate of return that is less than the company’s hurdle rate?You are the CFO for an automobile manufacturer. The board of
The section of Microsoft’s Form 10-K relating to management’s discussion and analysis provides detail as to factors that might affect Microsoft’s future and, as a result, the company’s
As you probably know, Boeing builds airplanes. While most famous for its big 747, Boeing is continually developing newer models. Over the past several years, Boeing has been developing the 787
DaimlerChrysler disclosed the following information relating to its long-term debt in its 2008 annual report:• 5.18% notes/bonds• 5.63% commercial paper• 5.72% liabilities to financial
The city council of Wheeler, Nevada, is faced with an important decision: whether or not to rezone a parcel of property and allow ChemStor, Inc., to purchase the land and build a chemical waste
How can we deal with uncertainties involved in capital budgeting?
Distinguish between the screening and ranking functions of capital budgeting.
Of what value is a profitability index in capital budgeting?
How do income taxes influence capital budgeting decisions?
Brendon Entertainment, Inc., is considering an investment that costs $785,000 today and has a salvage value in 10 years of $137,714, but the company is not sure how much net annual cash inflow will
Lee Rex Company is considering an investment that costs $250,000 today and will provide $40,000 each year in net cash inflow, but the company is not sure how long the investment will last. The
Kellman Company is considering eight capital investment projects. Kellman has a minimum required internal rate of return of 13%. Screen and rank the eight capital investment projects using the
RM Company is considering a project with a present value of net cash inflows of $2,345,000 and an initial investment cost of $1,250,000. What is the profitability index of this investment?
Screen and rank the following projects using the profitabilityindex.
Vonnegut Corporation has decided to invest in some equipment that costs $50,000 today and will generate cash inflows of $20,000 per year for the five-year life of the equipment. At the end of the
Karabekian Company has decided to invest in new factory machinery that will decrease labor costs by $50,000 per year. The new machinery will cost the company $200,000 and has an expected salvage
You have accumulated $55,000 in a mutual fund account that pays 10% interest. You are offered the opportunity to buy 220 ounces of gold at $250 per ounce. The price of gold is expected to rise to
Your company’s cost of capital was determined to be 12%. Several investment alternatives are being considered, and the discounted cash flows have given the following results:Net present value:1.
Using net present value (NPV) analysis, a manager can select those projects that will maximize the present value of future cash flows. NPV analysis is a powerful tool; however, surveys of current
California Company is trying to determine the relative profitability of two alternative color laser printers. Printer A requires an initial cash outlay of $6,000 and has a net present value of $500.
Kade Corporation is considering the purchase of a new piece of equipment. The equipment will cost $135,000 and is expected to have a useful life of five years. The gross cash flow savings is
Falcon Manufacturing is a leading manufacturer of airframe components for small aircraft. Heidi Saxton, Falcon’s operations manager, has submitted a request for a new piece of production equipment.
Taglioni's Pizza Company has to choose a new delivery car from among three alternatives. Assume that gasoline costs $3 per gallon and that the firm's cost of capital is 12%. The car will be driven
Sunshine Corporation is considering several long-term investments. Management wants to accept the two best projects, given the following data:Required:1. Determine the net present value and the
Get Rich Corporation has to choose between two investment opportunities. Investment A requires an immediate cash outlay of $100,000 and provides after-tax income of $20,000 per year for 10 years.
Dino Corporation is trying to decide which of five investment opportunities it should undertake.The company's cost of capital is 16%. Owing to a cash shortage, the company has a policy that it will
Sylvania Manufacturing Company is considering the purchase of new equipment to perform operations currently being performed on less efficient equipment. The purchase price is $142,000 delivered and
Franklin Bakery is considering buying a new doughnut-making machine. The cost of the machine is $10,000. The machine will last for 10 years and is expected to be worth $1,000 as scrap at that time.
Sanchez Company prepares reversing entries. If the adjusting entry for interest payable is reversed, what type of an account balance, if any, will there be in Interest Payable and Interest Expense
Texaco Oil Company issues its own credit cards. Assume that Texaco charges you $40 on an unpaid balance. Prepare the journal entry that Texaco makes to record this revenue.
Condensed financial data of Arma Inc. follow. Additional information: 1. New plant assets costing $85,000 were purchased for cash during the year. 2. Old plant assets having an original cost of
What are the three functions of an accounting system?
What are the essential elements in decision making, and how does accounting fit into the process?
What types of personal decisions have required you to use accounting information?
What does the term “business” mean to you?
Why is accounting often referred to as the “language of business”?
In what ways are the needs of internal and external users of accounting information the same? In what ways are they different?
What are generally accepted accounting principles (GAAP)? Who currently develops and issues GAAP? What is the purpose of GAAP?
Why is it important for financial statements and other external reports to be based on generally accepted accounting principles?
What are the respective roles of the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS) in the setting of accounting standards?
For you as a potential investor, what is the problem with different countries having different accounting standards? For you as the president of a multinational company, what is the problem with
Ethical considerations affect all society. Why are ethical considerations especially important for accountants?
Given significant technological advances, can we expect to see less demand for accountants and accounting-type services?
Other than that it is a requirement for your major or that your mom or dad is making you, why should you study accounting?
Assume that you are applying for a part-time job as an accounting clerk in a retail clothing establishment. During the interview, the store manager asks how you expect to contribute to the business.
Describe how bookkeeping is applied in each of the following settings:a. Your college English classb. The National Basketball Associationc. A hospital emergency roomd. Jury selection for a major
You are the owner of Automated Systems, Inc., which sells Apple computers and related data processing equipment. You are currently trying to decide whether to continue selling the Apple computer line
Assume you are a small business owner trying to increase your company’s profits. How can accounting information help you efficiently allocate your limited resources to maximize your business profit?
Users of Financial InformationWhy might each of the following individuals or groups be interested in a firm’s financial statements?a. The current stockholders of the firmb. The creditors of the
You work in a small convenience store. The store is very low-tech; you ring up the sales on an old-style cash register that merely records the amount of the sale. The store owner uses this cash
Assume your grandparents have just given you $20,000 on the condition that you invest the money in the stock market. As you contemplate making your investment choices, what accounting information do
Contrast management and financial accounting with respect to the following:• Overall purpose• Type of financial reports used (i.e., external, internal, or both)• Users of the informationAlso,
It is not often that the federal government has allowed the private sector to govern itself, but that is exactly what has happened with the field of accounting. The SEC has delegated the
This coming April, you will be faced with preparing your first tax return since mom and dad said “you are now on your own.” As you review the IRS regulations, you notice several differences from
You are scheduled to graduate from college with a degree in accounting and your mother would like to know what you plan to do with the rest of your life. She assumes that your only option is to be a

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