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survey of accounting

Questions and Answers of Survey of Accounting

=+A15-2 Personal investment analysis A Masters ofAccountancy degree at Mid-State University would cost $15,000 for an additional fifth year of education beyond the bachelor’s degree. Assume that
=+What is your advice to Elisa?
=+I. M.: Good. Here’s what I want you to do. I see in your analysis that you don’t project greater sales as a result ofthe warehouse. It seems to me, if we can store more goods, then we will have
=+Why don’t you relax some ofyour assumptions so that the financial savings will offset the cost?Elisa: I’m willing to discuss my assumptions with you. Maybe I overlooked something.
=+Elisa: No, really, I was being serious. My analysis does not support constructing a new ware¬house. The numbers don’t lie, the warehouse does not meet our investment return targets.In fact, it
=+Elisa McRae was recently hired as a cost analyst by Medlab Medical Supplies Inc. One of Elisas first assignments was to perform a net present value analysis for a new warehouse. Elisa performed the
=+8. Based upon the analyses, comment on the relative attractiveness ofthe proposals ranked in parts (6) and (7).
=+7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5).
=+6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).
=+5. Compute the present value index for each ofthe proposals in part (4). Round to two decimal places.
=+Use a rate of 12% and the present value of $1 table appearing in this chapter. Round to the nearest dollar.
=+4. For the proposals accepted for further analysis in part (3), compute the net present value.
=+Cash Payback Average Rate Accept for Proposal_Period_ofReturn_Further Analysis Reject Capital Investment Analysis 603
=+3. Using the following format, summarize the results ofyour computations in parts (1) and (2).By placing a check mark in the appropriate column at the right, indicate which proposals should be
=+2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate ofreturn for each ofthe four proposals. Round to one decimal
=+1. Compute the cash payback period for each of the four proposals.
=+The company’s capital rationing policy requires a maximum cash payback period ofthree years. In addition, a minimum average rate ofreturn of 12% is required on all projects. Ifthe preceding
=+P15-6 Capital rationing decision involving four proposals Objs 2, 4 SPREADSHEET/ 5. Proposal B, 1.18 Madison Capital Group is considering allocating a limited amount of capital investment funds
=+3. Prepare a report to the investment committee, providing your advice on the relative merits ofthe two projects.
=+2. For each project, compute the net present value, assuming that Project I is adjusted to a four-year life for purposes of analysis. Use the present value of $1 table appearing in this chapter.
=+1. For each project, compute the net present value. Use the present value of an annuity of $ 1 table appearing in this chapter. (Ignore the unequal lives ofthe projects.)
=+The committee has selected a rate of 12% for purposes of net present value analysis. It also estimates that the residual value at the end of each projects useful life is $0, but at the end of the
=+/ 1. Project II, $72,626 The investment committee of Safe Hands Insurance Co. is evaluating two projects. The projects have different useful lives, but each requires an investment of $225,000. The
=+P15-5 Evaluate alternative capital investment decisions Objs 2, 3 SPREADSHEET
=+3. What advantage does the internal rate ofreturn method have over the net present value method in comparing projects?
=+2. Determine the internal rate ofreturn for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of $1 table appearing in this
=+b. A present value index. Round to two decimal places.
=+a. The net present value. Use a rate of 6% and the present value of an annuity of $1 table ap¬pearing in this chapter.
=+The generating unit requires an investment of $2,060,500, while the distribution network expansion requires an investment of $546,660. No residual value is expected from either project.Instructions
=+P15-4 Net present value method, internal rate ofreturn method, and analysis Qhj 2 S 1.a. Generating unit,$191,750 The management of Genco Utilities Inc. is considering two capital investment
=+3. Which proposal offers the largest amount of present value per dollar ofinvestment?Explain.Capital Investment Analysis 601
=+2. Determine a present value index for each proposal. Round to two decimal places.
=+Instructions 1. Assuming that the desired rate ofreturn is 20%, prepare a net present value analysis for each proposal. Use the present value of $1 table appearing in this chapter.
=+P15-3 Continental Railroad Company wishes to evaluate three capital investment proposals by using Net present value method, the net present value method. Relevant data related to the proposals are
=+1. Compute the following for each project:a. Cash payback period.b. The net present value. Use the present value of $1 table appearing in this chapter.2. Prepare a briefreport advising management
=+Total $1,300,000 $1,300,000 Each product requires an investment of $770,000. A rate of 15% has been selected for the net present value analysis.Instructions
=+p-| 5_2 Unique Boutique Inc. is considering two investment projects. The estimated net cash flows from Cash payback period, net each Pr0jeCt are aS folloWS:present value method, and analysis Plant
=+2. Prepare a brief report for the capital investment committee, advising it on the relative merits ofthe two investments.
=+Each project requires an investment of $70,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes ofthe net present
=+P15-1 Average rate ofreturn method, net present value method, and analysis The capital investment committee ofEstate Landscaping Company is considering two capital investments. The estimated income
=+b. Assume that the plant produced product in the local economy but exported the product back to the United States for sale. Explain what impact the change in the currency exchange rate would have
=+a. Assume that the plant produced and sold product in the local economy. Explain what impact this change in the currency exchange rate would have on the project’s internal rate ofreturn.
=+E15-22 Changing prices Obj 3 Goodwell Foods Inc. invested $10,000,000 to build a plant in a foreign country. The labor and materials used in production are purchased locally. The plant expansion
=+Do you see any reason to question the validity ofthe data presented? Explain.
=+E15-21 Identify error in capital investment analysis calculations Obj 2 Integrated Technologies Inc. is considering the purchase of automated machinery that is ex¬pected to have a useful life
=+c. Determine the internal rate of return by computing a present value factor for an annuity of$1 and using the table ofthe present value of an annuity of $1 presented in the text.
=+b. Based on the analysis prepared in part (a), is the rate ofreturn (1) more than 12%, (2) 12%, or (3) less than 12%? Explain.
=+E15-20 Net present value method and internal rate ofreturn method Ob] 2 ya. ($6,606)Buckeye Healthcare Corp. is proposing to spend $96,030 on an eight-year project that has esti¬mated net cash
=+b. Provide a memo to management with a recommendation.
=+a. Compute the internal rate ofreturn for each investment. Use the table ofpresent values of an annuity of $1 in the chapter.
=+Capital Investment Analysis 599
=+E15-19 Internal rate ofreturn method—two projects Obj 2/a. Delivery truck, 10%Southwest Chip Company is considering two possible investments: a delivery truck or a bag¬ging machine. The delivery
=+El5-18 Internal rate ofreturn method Obj 2 IBM recently saved $250 million over three years by implementing supply chain software that reduced the cost of components used in its manufacture of
=+b. Using the factor determined in part (a) and the present value of an annuity of $1 table ap¬pearing in this chapter, determine the internal rate of return for the proposal.
=+a. Determine a present value factor for an annuity of $ 1 which can be used in determining the internal rate ofreturn.
=+E15-17 Internal rate ofreturn method Obj 2/a. 4.487 The internal rate ofreturn method is used by Timberframe Renovations Inc. in analyzing a capital expenditure proposal that involves an investment
=+c. What else should the manager consider in the analysis?
=+b. What is the net present value, assuming a 10% rate ofreturn?
=+a. What is the payback period on this project?
=+El 5-16 Payback period, net present value analysis and qualitative considerations Objs 2, 3 The plant manager of O’Brien Equipment Company is considering the purchase of a new robotic assembly
=+c. The net present value. Use the table ofthe present value of an annuity of $1 appearing in this chapter. Round to the nearest dollar.
=+a. The average rate ofreturn, giving effect to straight-line depreciation on the investment.
=+El 5-15 Average rate ofreturn, cash payback period, net present value method Obj 2/b. 5 years Southern Rail Inc. is considering acquiring equipment at a cost of $442,500. The equipment has an
=+c. IfMVP has sufficient funds for only one ofthe machines and qualitative factors are equal between the two machines, in which machine should it invest?
=+b. Determine the present value index for the two machines. Round to two decimal places.
=+a. Determine the net present value for the two machines. Use the table of present values of an annuity of $1 in the chapter. Round to the nearest dollar.
=+1,750 hours per year. The packing machine will cost $148,300, have an eight-year life, and will operate for 1,500 hours per year. MVP seeks a minimum rate ofreturn of 15% on its investments.
=+MVP Sporting Goods Company is considering an investment in one oftwo machines. Tire sew¬ing machine will increase productivity from sewing 120 baseballs per hour to sewing 180 per hour. The
=+Drive By Doughnuts has computed the net present value for capital expenditure locations A and B, using the net present value method. Relevant data related to the computation are as follows:Location
=+c. Assume that Carnival Corp. decided to increase its price so that the revenue increased to$320 per passenger per cruise day. Would this allow Carnival Corp. to earn a 15% rate of return on the
=+b. Determine the net present value ofthis investment, assuming a 12% minimum rate ofre¬turn. Use the present value tables provided in the chapter in determining your answer.
=+a. Determine the annual net cash flow from operating the cruise ship.
=+• The ship has a service life of 10 years, with a salvage value of $90,000,000 at the end of 10 years.
=+Carnival Corporation has recently placed into service some ofthe largest cruise ships in the world. One ofthese ships, the Carnival Glory, can hold up to 3,000 passengers and cost $530 million to
=+Determine IHOP’s:a. Net investment (development cost less initial franchise fee) to develop a restaurant.b. Net present value for a new restaurant, assuming a 10-year life, no change in annual
=+IHOP reported that franchise operators earned annual revenues averaging $1,500,000 per restaurant. Assume that the net cash flows received by IHOP for lease payments and sale of proprietary
=+(2) income from the leasing of the restaurant and related equipment; and (3) revenue from the sale of certain proprietary products, primarily pancake mixes.
=+IHOP develops and owns the restaurant properties. IHOP indicates that the franchisee pays an initial franchise fee of $300,000 for a newly developed restaurant. IHOP also receives revenues from the
=+IHOP Corp. franchises breakfast-oriented restaurants throughout North America. The average development costs for a new restaurant were reported by IHOP as follows:Land $ 667,000 Building 800,000
=+The estimated residual value ofthe apartment complex at the end of year 4 is $420,000.Determine which project should be favored, comparing the net present values ofthe two projects and assuming a
=+Blue Ridge Development Company has two competing projects: an apartment complex and an office building. Both projects have an initial investment of $720,000. The net cash flows esti¬mated for the
=+c. Should Maddox invest in the bulldozer, based on this analysis?
=+b. Determine the net present value ofthe investment, assuming that the desired rate ofreturn is 10%. Use the table of present values of an annuity of $1 in the chapter. Round to the nearest dollar.
=+a. Determine the equal annual net cash flows from operating the bulldozer.
=+b. Under the assumptions provided here, is the film expected to be financially successful?Maddox Excavation Company is planning an investment of $205,000 for a bulldozer. The bull¬dozer is
=+a. Determine the net present value ofthe film as ofthe beginning of 2009 ifthe desired rate of return is 20%. To simplify present value calculations, assume all annual net cash flows occur at the
=+Assume that MGM releases a film during early 2009 at a cost of $115 million, and releases it halfway through the year. During the last half of 2009, the film earns revenues of $140 million at the
=+E15-8 Net present value method Obj 2 SPREADSHEET/a. $21 million Metro-Goldwyn-Mayer Studios Inc. (MGM), is a major producer and distributor oftheatrical and television filmed entertainment.
=+b. Would management be likely to look with favor on the proposal? Explain.
=+E15-7 Net present value method The following data are accumulated by Zadoc Company in evaluating the purchase of $370,000 of equipment, having a four-year useful life:Obj 2 Net Income Net Cash
=+b. Why is one product line preferred over the other, even though they both have the same total net cash flows through eight periods?
=+a. Recommend a product offering to Family back period for each product line.
=+E15-6 Cash payback method Ob] 2 SPREADSHEET ya. Cosmetics: 4 years Family Care Products Company is considering an investment in one oftwo new product lines.The investment required for either
=+Determine the cash payback period for both proposals.
=+E15-5 Cash payback period Obj 2/ Proposal 1: 5 years First Union Bank Corporation is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $300,000
=+E15-4 Calculate cash flows Obj 2/ Year 1: ($62,725)Gardeneer Inc. is planning to invest $184,000 in a new garden tool that is expected to generate additional sales of 7,500 units at $38 each. The
=+E15-3 Average rate ofreturn—new product ObJ 2/ Average annual Income, $21 6,000 Airwave Communications Inc. is considering an investment in new equipment that will be used to manufacture a PDA
=+E15-2 Average rate ofreturn—cost savings Ob] 2 International Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $85,000, with a
=+^ m9/t ng eC,U'Pment Amount of investment $34,000 $40,000 Useful life 6 years 8 years Estimated residual value 0 0 Estimated total income over the useful life $10,200 $14,000 Determine the expected
=+ _ -\ The following data are accumulated by Green Mountain Testing Services Inc. in evaluating two Average rate ofreturn competing capital investment proposals:Testing Equipment Centrifuge

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