7) Granfield Company has a piece of manufacturing equipment with a book value of $44,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $22,800. Granfield can purchase a new machine for $128,000 and receive $22,800 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $19,800 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

$26,000 increase

$79,200 decrease

$21,200 decrease

$54,800 increase

$26,000 decrease

8) Ahngram Corp. has 1,000 defective units of a product that cost $3.70 per unit in direct costs and $7.20 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.70 per unit or reworked at an additional cost of $3.20 and sold at full price of $14.10. The incremental net income (loss) from the choice of reworking the units would be:

$6,200.

$0.

($3,200).

$10,900.

$3,200.

9) Granfield Company is considering eliminating its backpack division, which reported an operating loss for the recent year of $43,000. The division sales for the year were $979,000 and the variable costs were $485,000. The fixed costs of the division were $537,000. If the backpack division is dropped, 40% of the fixed costs allocated to that division could be eliminated. The impact on Granfield's operating income for eliminating this business segment would be:

$279,200 increase

$494,000 decrease

$214,800 increase

$279,200 decrease

$494,000 increase

10) Markson Company had the following results of operations for the past year:

Sales (8,000 units at $19.60)		$156,800
Variable manufacturing costs	$84,400
Fixed manufacturing costs	14,600
Variable selling and administrative expenses	10,400
Fixed selling and administrative expenses	19,600	(129,000)
Operating income		$27,800

A foreign company whose sales will not affect Markson's market offers to buy 2,000 units at $13.40 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $1,560 for the purchase of special tools. If Markson accepts this additional business, its profits will:

Increase by $1,540.

Decrease by $1,560.

Decrease by $4,660.

Increase by $3,100.

Decrease by $5,450.

11) Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $2,700. The division sales for the year were $1,047,000 and the variable costs were $857,000. The fixed costs of the division were $190,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:

$57,000 decrease

$133,000 decrease

$54,300 decrease

$190,000 increase

$190,000 decrease

12) Chang Industries has 1,100 defective units of product that have already cost $13.10 each to produce. A salvage company will purchase the defective units as they are for $4.10 each. Chang's production manager reports that the defects can be corrected for $6.90 per unit, enabling them to be sold at their regular market price of $19.20. The incremental income or loss on reworking the units is:

$9,020 loss.

$9,020 income.

$7,590 loss.

$16,610 income.

$13,530 income.

13) Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3.70 per unit. Bluebird currently produces and sells 75,000 units at $7.70 each. This level represents 80% of its capacity. Production costs for these units are $4.55 per unit, which includes $2.60 variable cost and $1.95 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

$55,500 increase.

$16,500 increase.

$39,000 increase.

$12,750 decrease.

$39,000 decrease.

14) Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,100 and will produce cash flows as follows:

End of Year	Investment
	A	B
1	$8,100	$0
2	8,100	0
3	8,100	24,300

The present value factors of $1 each year at 15% are:

1	0.8696
2	0.7561
3	0.6575

The present value of an annuity of $1 for 3 years at 15% is 2.2832

The net present value of Investment A is:

$15,977.

$(15,100).

$9,200.

$(18,495).

$3,394.

15) Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,500 and will produce cash flows as follows:

End of Year	Investment
	A	B
1	$8,500	$0
2	8,500	0
3	8,500	25,500

The present value factors of $1 each year at 15% are:

1	0.8696
2	0.7561
3	0.6575

The present value of an annuity of $1 for 3 years at 15% is 2.2832

The net present value of Investment B is:

$1,266.

$(16,766).

$10,000.

$3,907.

16) The following data concerns a proposed equipment purchase:

Cost	$159,200
Salvage value	$4,800
Estimated useful life	4 years
Annual net cash flows	$46,900
Depreciation method	Straight-line

The annual average investment amount used to calculate the accounting rate of return is:

$79,600

$77,200

$39,800

$82,000

$56,150

17) The following present value factors are provided for use in this problem.

Periods	Present Value of $1 at 8%	Present Value of an Annuity of $1 at 8%
1	0.9259	0.9259
2	0.8573	1.7833
3	0.7938	2.5771
4	0.7350	3.3121

Xavier Co. wants to purchase a machine for $36,000 with a four year life and a $1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $11,000 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)?

$1,315.

$433.

$37,315.

$(1,315).

$(433).

18) A company is planning to purchase a machine that will cost $30,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?

Sales		$123,000
Cost:
Manufacturing	$53,100
Depreciation on machine	5,100
Selling and administrative expenses	41,000	(99,200)
Income before taxes		$23,800
Income tax (30%)		(7,140)
Net income		$16,660

1.41 years.

3.59 year.

1.84 years.

6.00 years.

3.67 years.

19) Carmel Corporation is considering the purchase of a machine costing $36,000 with a 6-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?

$36,000.

$18,000.

$21,000.

$7,000.

$6,000.