Question
13. One division of the Marvin Educational Enterprises has depreciable assets costing $4,130,000. The cash flows from these assets for the past three years have
13. One division of the Marvin Educational Enterprises has depreciable assets costing $4,130,000. The cash flows from these assets for the past three years have been:
Year | Cash flows | |||
1 | $ | 1,395,000 | ||
2 | $ | 1,452,000 | ||
3 | $ | 1,633,000 | ||
The current (i.e., replacement) costs of these assets were expected to increase 20% each year. Marvin used the straight-line depreciation method; the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances. What is the residual income for each year, assuming the cost of capital is 12% and Marvin uses historical costs and net book values to compute residual income?
Year 1 | Year 2 | Year 3 | |||||||
A. | $ | 167,400 | $ | 174,240 | $ | 195,960 | |||
B. | $ | 535,960 | $ | 642,520 | $ | 873,080 | |||
C. | $ | 279,000 | $ | 290,400 | $ | 326,600 | |||
D. | $ | 535,960 | $ | 585,520 | $ | 635,080 | |||
Option A
Option B
Option C
Option D
14. Frocks and Gowns, Inc., has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $740,000 and produces (and sells) 105,000 units of Collars at a market price of $12.50 per unit. Variable costs total $5.30 per unit, and fixed charges are $4.50 per unit (based on a capacity of 125,000 units). The Night Wear Division wants to purchase 24,000 units of Collars from The Day Wear Division. However, the Night Wear Division is only willing to pay $9.00 per unit. What is the contribution margin for the Day Wear Division if it transfers 24,000 units to the Night Wear Division at $9.00 per unit?
$945,000.
$816,000.
$283,500.
$756,000.
15. One division of the Marvin Educational Enterprises has depreciable assets costing $4,900,000. The cash flows from these assets for the past three years have been:
Year | Cash flows | |||
1 | $ | 1,911,000 | ||
2 | $ | 2,156,000 | ||
3 | $ | 2,205,000 | ||
The current (i.e., replacement) costs of these assets were expected to increase 20% each year. Marvin used the straight-line depreciation method; the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances. What is the ROI using current costs and gross book value?
Year 1 | Year 2 | Year 3 | ||||||
A. | 32.5 | % | 30.6 | % | 26.0 | % | ||
B. | 25.6 | % | 22.7 | % | 22.2 | % | ||
C. | 27.0 | % | 29.6 | % | 27.7 | % | ||
D. | 22.5 | % | 20.6 | % | 16.0 | % | ||
Option A
Option B
Option C
Option D
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