Question 10 (2.5 points)

Darlington Company is considering investing in an equipment, which will increase yearly cash revenues by $65000, and yearly cash expenses to operate the equipment by $30,000. The asset will cost $200,000, and will last 8 years, with a salvage value of $40,000. Assuming a tax rate of 39%, determine the net present value of this asset, if the company requires a 10% return on investments.

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Question 11 (2.5 points)

A company uses the net present value methodology in making capital expenditure decisions. In making a decision where they have to choose among two pieces of equipment, which of the following pieces of information will be considered irrelevant

Question 11 options:

	Initial cost of each machine
	Estimated life of each machine
	Salvage value of each machine
	Cash flow generated by each machine during the estimated life of the machine
	All of the above are relevant

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Question 12 (2.5 points)

Baton Rouge Company is considering purchasing new equipment which will cost $950,000. This equipment is expected to have a useful life of 15 years, have a salvage value of $50,000 and is expected to have an annual net cash inflow (before taxes) of $80,000. Assume the company is in the 34% tax bracket.

What is Baton Rouge's annual net cash inflow (after taxes)?

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Question 13 (2.5 points)

Co. X has gathered the following estimates:

	Machine A	Machine B
Cost	$600,000	$600,000
Life	5 yrs	5 yrs

Net Cash Inflow:

Yr 1	$100,000	$500,000
Yr 2	$200,000	$400,000
Yr 3	$300,000	$300,000
Yr 4	$400,000	$200,000
Yr 5	$500,000	$100,000

Co. X uses the net present value method to evaluate capital expenditures. Which of the following two machines has the higher net present value?

Question 13 options:

	Machine B
	Machine A
	They are the same
	Cannot be determined from the information provided

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Question 14 (2.5 points)

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:

Product	Cases	Selling Price/Case	Additional Costs/Case
Catsup	100,000	$10	$2
Tomato Juice	150,000	$8	$1
Canned Tomatoes	250,000	$12	$3

The joint cost allocated to Canned Tomatoes (using the net realizable value method) is (round to the closest $)

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Question 15 (2.5 points)

Red Sauce Canning Company processes tomatoes into catsup, tomato juice, and canned tomatoes. During November, they incurred joint processing costs of $420,000. Production and sales value information for November are as follows:

Product	Cases	Selling Price/Case	Additional Costs/Case
Catsup	100,000	$10	$2
Tomato Juice	150,000	$8	$1
Canned Tomatoes	250,000	$12	$3

Red Sauce Canning Company is considering an option to further refine Catsup. By incurring an additional cost of $60,000, they will be able to increase their selling price of Catsup to $11.20 per case. Determine the incremental advantage (disadvantage) of this option? (round to the closest $)

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