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Rooney, Inc. is considering the purchase of a new machine costing $700,000. The machine's useful life is expected to be 8 years with no salvage value. The straight-line depreciation method will be used. The net increase in annual after tax cash flow is expected to be $156,000. Rooney estimates its cost of capital to be 12%. (The present value of a $1 annuity for 8 years at 12% is 4.968, and the present value of $1 to be received in 8 years is 0.404) The net present value of the investment in the machine under consideration is: $87,500. $126,800. $75,008. $156,000. 0 Upper level managers at Rooney, Inc. are concerned that employee estimates of future cash flows from the new machine may be overly optimistic. To what dollar amount can the annual after tax cash flow fall before the investment in the new machine should be rejected? $140,902. $31,401. $282,800. $700,000. If a product sells for $10, variable costs are $6 and fixed costs are $180,000, what would total sales have to be in order to break-even? $270,000. $450,000. $180,000. $720,000. Baskin Promotions, Inc. sells T-shirts decorated for a variety of concert performers. The company has developed the following budget for the coming year based on a sales forecast of 83,000 T-shirts: Sales Cost of Goods Sold $ 1,454,990 853,240 Gross Profit Operating Expenses ($100,000 is fixed) 601,750 430,340 Operating Income Income Taxes (30% of Operating income) 171,410 51,423 Net Income $ 119,987 Cost of goods sold and variable operating expenses vary directly with sales, and the income tax rate is 30% at all levels of operating income. If the concert season is slow due to poor weather, Baskin estimates that sales could fall to as low as 63,000 T-shirts. 0 In a flexible budget for sales of 63,000 T-shirts, how much would Baskin budget for operating expenses? $250,740. $430,340. $330,340. $350,740. What unit cost did Baskin use in budgeting the cost of goods sold for the year? $6.05 Some other amount. $10.28. $17.53. 0 Assume Baskin actually achieves the 63,000 unit sales level, and that net income actually earned at this level was $76,900. A performance report would indicate that net income was: $43,087 under budget. At the budgeted level. $2,693 over budget. $13,977 under budget. Calculate the residual income assuming the following information: Operating earnings Minimum acceptable return Invested capital $465,000 12% $1,750,000 $154,200. $55,800. $255,000. $210,000 Helicopter Gear is planning to expand its product line, which requires investment of $472,200 in special-purpose machinery. The machinery has a useful life of six years and no salvage value. The estimated annual results of offering the new products are as follows: Revenue Expenses (Including straight-line depreciation) Increase in net income $ 525,500 (499,600) $ 25,900 All revenue from the new products and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. The payback period for this proposed investment is: 6.0 years. 2.3 years. 4.5 years. 9.1 years. 0 The return on average investment for this proposed investment is closest to: 4.93%. 44.30%. 5.48%. 10.97%. 0 Compute the net present value of this proposed investment, using a discount rate of 14%. (An annuity table shows that the present value of $1 received annually for six years, discounted at 14%, is 3.889.) $104,600. $406,789. ($65,411). $367,600. John Boyd Corporation manufactures and sells 1,000 tractors each month. The primary component in each tractor is the motor. John Boyd has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below: Direct materials Direct labor Variable manufacturing overhead $30 $22 $35 Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $33,000. Joan Reid, Inc. has offered to purchase 260 motors from John Boyd per month to be used in its own outboard motors. 0 If Joan Reid's order is rejected, what will be John Boyd 's average unit cost of manufacturing each motor? $87 per unit. $52 per unit. Some other amount. $120 per unit. 0 What is the incremental cost of producing each additional motor? Some other amount. $87 per unit. $120 per unit. $52 per unit. 0 Assuming John Boyd wants to earn a pretax profit of $14,560 on this special order, what price must it charge Joan Reid? $143 per unit. $83 per unit. $87 per unit. $120 per unit. The following information regarding Mahen, Inc. is available: Sales Cost of goods sold Operating expenses Operating income Average invested capital $1,500,000 $900,000 $450,000 $150,000 $2,500,000 0 What is the return on investment for Mahen, Inc? 10.00%. 40.00%. 6.00%. 24.00%. 0 What is the return on sales for Mahen, Inc.? 10.00%. 24.00%. 6.00%. 40.00%. 0 What is the capital turnover for Mahen, Inc.? 6.00%. 60.00%. 10.00%. 40.00%