Question
sky is also considering acquiring a piece of machinery that helps her print designs on new or usedskateboards, regardless of which business plan she ends
sky is also considering acquiring a piece of machinery that helps her print designs on new or usedskateboards, regardless of which business plan she ends up selecting to move forward with. Please treatthis acquisition separate from any other analysis you prepare for income projections; it should not beincluded inanyprojectionsyouputtogether.Below,you'llfindthedetails ofthispurchase:
| InitialInvestment | $75,000 |
| Estimatedusefullife | 12years |
| SalvageValue | $3,000 |
| EstimatedAnnualCashFlows | |
IncreasedCashInflowsfromMachinery | $7,000 |
OperatingandMaintenanceCosts | ($2,000) |
ReductioninManualLabour | $3,000 |
| NetAnnualCashFlow | $8,000 |
Ifsheweretoacquirethisasset,shewouldhavetotakeouta$75,000loanforwhich5%interest onprincipalonly willbe chargedannually.
Sheiswonderingthefollowing:
- Isthisagoodinvestment,andwhyorwhynot?Pleasediscuss quantitativeandqualitativefactorsto consider.
- Sheheardtheterm'pay-backperiod'; whatdoesthismean,andwhatwouldbeconsidereda'good'payback periodfor her?
- Whataccountingentries(DebitsandCredits)mightshehavetobookuponpurchasingtheasset?
- Whataccountingentries(DebitsandCredits)mightshehavetobookafterafullyearofusingtheasset,assuming sheelectstousethestraight-linedepreciationmethod?
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The Legal Environment of Business A Critical Thinking Approach
Authors: Nancy K Kubasek, Bartley A Brennan, M Neil Browne
6th Edition
978-0132666688, 132666685, 132664844, 978-0132664844
