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horngrens cost accounting a managerial emphasis

Questions and Answers of Horngrens Cost Accounting A Managerial Emphasis

=+d difference in after-tax cash flow from terminal disposal of new machine and old machine.
=+c cash tax savings due to differences in annual depreciation of the old machine and the new machine
=+b annual recurring after-tax cash operating savings from using the new machine (variable and fixed)
=+18-33 KKK Replacement of a machine, income taxes, sensitivity (CMA, adapted) OBJECTIVES 3, 4, 8 Kingaroy’s Nuttery produces peanut butter. The company has a grinding machine that has been in use
=+2 Assume you expect the following cash revenue stream for this investment:Year 1 $90 000 Year 2 115 000 Year 3 130 000 Year 4 155 000 Year 5 170 000 Year 6 180 000 Year 7 140 000 Year 8 125 000
=+18-32 K Payback, even and uneven cash flows OBJECTIVE 5 You have the opportunity to expand your business by purchasing new equipment for $225000. You expect to incur cash fixed costs of $45000 per
=+5 Discuss how the changes in assumptions have affected the decision to expand.
=+4 The finance manager has decided that the company should earn 4% more than the cost of capital on any project. Recalculate the original NPV in requirement 1 using the new discount rate and
=+3 The finance manager thinks that costs will vary with revenues, and if the revenues are 15% higher the costs will be 10% higher.If the revenues are 15% lower the costs will be 10% lower.
=+2 Assume the finance manager of Meriton is not sure about the cash revenues and costs. The revenues could be anywhere from 15% higher to 15% lower than predicted. Assume cash costs are still $12000
=+18-31 KKK NPV, IRR and sensitivity analysis OBJECTIVES 3, 4 Meriton Ltd is considering expanding by buying a new (additional) machine that costs $92000, has zero terminal disposal value and a
=+3 Discuss how management would use the data developed in requirements 1 and 2 in its consideration of the proposed capital investment.
=+2 Calculate the effect on the net present value of the following two changes in assumptions (treat each item independently of the other):a 10% reduction in the selling price b 10% increase in the
=+Jigsaws are a new market for Listrel and management is concerned about the reliability of the estimates. The management accountant has proposed applying sensitivity analysis to selected factors.
=+18-30 KK DCF, sensitivity analysis, no income taxes (CMA, adapted) OBJECTIVES 3, 4 Listrel Ltd is a manufacturer of power drills. Management at Listrel is considering expanding the product line to
=+3 Suppose Tenilite is planning to build several more plants. It wants to have the most advantageous tax position possible. Tenilite has been approached by Spain, Hong Kong and Australia to
=+2 Calculate net present value of the modernise and replace alternatives.
=+18-29 KKK Equipment replacement, income taxes (continuation of 18-28) OBJECTIVES 3, 5, 7 Assume the same facts as in Problem 18-28, except that the plant is located in Auckland, New Zealand.
=+4 What factors should Tenilite consider in choosing between the alternatives?
=+3 Calculate the net present value of the modernise and replace alternatives.
=+2 Calculate the payback period for the modernise and replace alternatives.
=+Tenilite uses straight-line depreciation, assuming zero terminal disposal value. For simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning
=+18-28 KKK Equipment replacement, no income taxes OBJECTIVES 3, 5, 8 Tenilite Ltd manufactures luxury yachts in a state-of-the-art facility in Singapore. In 2016, Tenilite expects to deliver 48
=+2 What non-financial factors should Maleny Dairy Foods consider before making its choice?
=+◗ Option 3. The facility could be used to make specialty frozen yoghurts. Fixed overhead costs (a cash outflow) are estimated to be $9000 annually for the five-year period. The frozen yoghurt
=+◗ Option 2. The facility can be leased to Peaches Ltd, one of Maleny Dairy Foods’s suppliers, for five years. Under the lease terms, Peaches would pay Maleny Dairy Foods $96000 rent per year
=+◗ Option 1. The facility, which has been fully depreciated for tax purposes, can be sold immediately for $575000.Chapter 18: Capital budgeting and cost analysis 719 M18_HORN3377_02_LT_C18.indd
=+18-27 KKK Selling a plant, income taxes (CMA, adapted) OBJECTIVES 3, 8, 9 Maleny Dairy Foods produces specialty yoghurts with fresh fruits and berries. Its Queensland fruit processing facility will
=+18-26 KKK New equipment purchase, income taxes OBJECTIVES 3, 5 Lighting Ltd is considering the purchase of a new machine that will allow it to produce LED lights. The machine has an estimated
=+2 Compare and contrast the capital budgeting methods in requirement 1.
=+18-25 KKK New equipment purchase, income taxes OBJECTIVES 3, 5 Samson’s Cranes plans to purchase a new crane. The crane has an estimated useful life of 10 years. The purchase price for the crane
=+4 You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods?The required accrual accounting rate of return (based on initial
=+3 Calculate accrual accounting rate of return based on net initial investment. Assume straight-line depreciation.
=+2 Calculate internal rate of return.
=+18-24 KK DCF, accrual accounting rate of return, working capital, evaluation of performance, no income taxes OBJECTIVES 3, 6, 7 Currimundi Laboratories plans to purchase a new centrifuge machine
=+3 Which projects, if any, would you recommend funding? Briefly explain why.
=+2 Jenny thinks that projects should be selected based on their NPVs. Assume all cash flows occur at the end of the year except for initial investment amounts. Calculate the NPV for each project.
=+b Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which project should Maxwell choose?
=+a What are the benefits and limitations of using the payback method to choose between projects?
=+18-23 KK Payback and NPV methods, no income taxes (CMA, adapted) OBJECTIVES 3, 5 Jackson’s Excavators is analysing its capital expenditure proposals for the purchase of equipment in the coming
=+3 Discuss the financial factors, other than the cost of the plan, and the non-financial factors that should be considered in selecting an appropriate payment plan.
=+2 Which payment plan should Santolis choose? Explain.
=+◗ Plan III. Payment of $100000 at the time of signing the contract and $2000000 at the end of each of the three succeeding years.Required 1 Using the net present value method, calculate the
=+18-22 KK Comparison of projects, no income taxes (CMA, adapted) OBJECTIVES 3, 4, 9 Santolis is a rapidly growing eco-technology company that has a required rate of return of 8%. It plans to build a
=+3 internal rate of return 4 accrual accounting rate of return based on net initial investment (assume straight-line depreciation; use the average annual savings in cash operating costs when
=+18-21 KK Capital budgeting with uneven cash flows, no income taxes OBJECTIVES 1, 3, 5, 6 Eumundi Engines is considering a diagnostic computer at a cost of $19000. It is expected to have a useful
=+2 How would your calculations in requirement 1 be affected if the special-purpose oven had a $5000 terminal disposal value at the end of 7 years? Assume depreciation deductions are based on the
=+18-20 KK Capital budgeting, income taxes (continuation of 18-19) OBJECTIVES 1, 3, 4, 5, 6 Assume the same facts as in Exercise 18-19 except that Homecare is a tax-paying entity. The income tax rate
=+2 What other factors should Homecare consider in deciding whether to purchase the special-purpose oven?
=+18-19 KK Capital budgeting methods, no income taxes OBJECTIVES 1, 3, 5, 6 Homecare, a not-for-profit organisation that provides meals to the disadvantaged, estimates that it can save $14000 a year
=+2 What other factors should Staples consider in deciding whether to purchase the new computer system?
=+18-18 KK Capital budgeting methods, no income taxes OBJECTIVES 1, 3, 5, 6 Staples Ltd runs stationery wholesale stores in Queensland. Staples’s management estimates that if it invests $275000 in
=+The required rate of return is 6% compounded annually. All cash inflows occur at the end of each year. In terms of net present value, which plan is more desirable? Show your calculations.
=+7 The following table shows two schedules of prospective operating cash inflows, each of which requires the same net initial investment of $10000 now:Annual cash inflows Year Plan A Plan B 1 $1 000
=+6 You have estimated that for the first 10 years after you retire you will need a cash inflow of $50000 at the end of each year.How much money do you need to invest at 6% at your retirement age to
=+5 You have just turned 65 and an endowment insurance policy has paid you a lump sum of $200000. If you invest the sum at 6%, how much money can you withdraw from your account in equal amounts at
=+4 You plan to save $5000 of your earnings at the end of each year for the next 10 years. How much money will you accumulate at the end of the tenth year if you invest your savings compounded at 12%
=+3 If the unpaid mortgage on your house in 10 years will be $89550, how much money do you need to invest at the end of each year at 6% to accumulate exactly this amount at the end of the tenth
=+2 Ten years from now the unpaid principal of the mortgage on your house will be $89550. How much do you need to invest today at 6% interest compounded annually to accumulate the $89550 in 10 years?
=+18-17 Exercises in compound interest, no income taxes (Revision: financial mathematics)To be sure that you understand how to use the tables in the Appendix at the end of this book, solve the
=+18-16 What is ‘escalation of commitment’ and how can it be reduced?
=+18-15 How can capital budgeting tools assist in evaluating a manager who is responsible for retaining customers of a mobile telephone company?
=+18-14 Describe three ways income taxes can affect the cash inflows or outflows in a motor vehicle replacement decision by a tax-paying company.
=+18-13 Distinguish different categories of cash flows to be considered in an equipment replacement decision by a tax-paying company.
=+18-12 Greg Parsons, CEO of Maccas Nuts, accepts a capital budgeting project proposed by the Macadamia Nut Division. This is the division in which the CEO spent his first 10 years with the company.
=+18-11 ‘We have invested so much in this project that it would be crazy to pull out now.’ What are the problems with this way of thinking?
=+18-10 ‘All overhead costs are relevant in NPV analysis.’ Do you agree? Explain.
=+considerations are overlooked.’ Do you agree? Explain.
=+18-9 ‘Let’s be more practical. DCF is not the gospel. Managers should not become so enchanted with DCF that strategic
=+18-8 ‘The trouble with discounted cash flow methods is that they ignore depreciation.’ Do you agree? Explain.
=+18-7 Describe the accrual accounting rate-of-return method. What are its main strengths and weaknesses?
=+18-6 What is the payback method? What are its main strengths and weaknesses?
=+18-5 How can sensitivity analysis be incorporated in DCF analysis?
=+18-4 ‘Only quantitative outcomes are relevant in capital budgeting analyses.’ Do you agree? Explain.
=+18-3 What is the essence of the discounted cash flow methods?
=+18-2 List and briefly describe each of the five stages in capital budgeting.
=+18-1 ‘Capital budgeting has the same focus as accrual accounting.’ Do you agree? Explain.
=+Assume that Top-Spin is subject to income tax at a 40% rate. All other information from Problem 1 is unchanged. Calculate the NPV of the new carbon-fibre machine project.
=+Returning to the Top-Spin carbon-fibre machine project, assume that Top-Spin is a not-for-profit organisation and that the expected additional operating cash inflows are $130000 in years 1 to 4
=+How do strategic issues affect the capital budgeting process?
=+ How should accrual accounting concepts be considered?
=+What are the relevant cash inflows and outflows for capital budgeting decisions?
=+ How can these conflicts be reduced?
=+What conflicts can arise between using DCF methods for capital budgeting decisions and accrual accounting for performance evaluation?
=+What is the accrual accounting rate-of-return (AARR) method? What are its limitations?
=+What is the payback method? What are its two main weaknesses?
=+How does uncertainty about future cash flows and the required rate of return affect the evaluation of net present value calculations?
=+What are the two main discounted cash flow (DCF) methods? What are their advantages?
=+How does time affect the value of future cash flows in a multiyear project?
=+9 Explain how strategic issues influence the capital budgeting process
=+8 Identify relevant cash inflows and outflows for capital budgeting decisions
=+7 Identify and reduce conflicts from using DCF for capital budgeting decisions and accrual accounting for performance evaluation
=+5 Use and evaluate the payback method
=+4 Evaluate the sensitivity of net present value calculations to assumed cash flows and required rate of return
=+2 Describe the five stages of capital budgeting for a project
=+1 Explain how capital budgeting incorporates the time value of money into multiyear analysis
=+3 Backflush costing has its critics. For instance:The periodic (backflush) system has never been reflective of the reporting needs of a manufacturing system. In the highly standardised operating
=+b Glendale Engineering had no direct materials, no work-in-process and no finished goods inventories?
=+a Glendale Engineering had no direct materials and no work-in-process inventories but did have finished goods inventory?
=+2 Think about the two versions of backflush costing shown in Figure 17-9 (p. 677). These versions differ with respect to the number and types of trigger points used. Suppose your goal of

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