Your company has two alternatives to consider for purchasing new heat treating ovens for hardening and annealing production metal assemblies. Details of each alternative are given below. Draw the cash flow diagram for each and assume your company’s MARR is 8%. Using a present value comparison which alternative do you recommend?

Alternative A: The TomKin Oven Company will sell your company 5 heat treating ovens with manual feeds and extraction mechanisms. The ovens will initially cost $18,000 each and have an estimated life of 7 years. They will all require insulation overhauls in year 4 costing $2,500 each. At the end of their life each oven is estimated to be worth $2,000. The ovens will result in tougher metal assemblies which is estimated to save the company $57,000 per year total in year 1 increasing by $3,500 per year total every year after year 1.

Alternative B: The Quickspeed Heat Treat Equipment Company will also sell your company 5 heat treating ovens but with automatic feeds and extraction mechanisms. The ovens will initially cost $25,000 each and have an estimated life of 7 years. They will not require any insulation overhauls but are each expected to have maintenance issues costing $700 each in year 1 and then increasing by $400 each for every year after year 1. At the end of their life, each oven is estimated to be worth $3,000. The ovens will result in tougher metal assemblies which is estimated to save the company $70,000 per year total in year 1 increasing by $4,100 per year total every year after year 1.

During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows:

* $3 per unit variable; $253,000 fixed each year.

The company’s $39 unit product cost is computed as follows:

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

Production and cost data for the first two years of operatons are:

Required:

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

2)

What is the variable costing net operating income in Year 1 and in Year 2?

3)

Reconcile the absorption costing and the variable costing net operating income figures for each year. (Enter any losses or deductions as a negative value.)

1. This exercise is based on one in Hartman (2007). A pharmaceutical company needs to use a supercomputer to run simulation models as part of its research on cures for AIDS, cancer, and other diseases. The firm expects to perform thousands of simulation runs per year for the next 3 years. The firm can purchase a supercomputer for $2.5 million; the annual operating and maintenance costs are $200,000 per year, and the supercomputer can perform 15,000 runs per year. For every simulation run above 15,000 in a year, the operating costs rise $1,000 per year to cover the needed overtime. A second alternative is to outsource the simulation runs to an IT firm that offers supercomputing services on demand. They will charge the pharmaceutical company $400 per simulation run. Consider a 3-year time horizon, and assume that the number of runs per year is the same every year. The firm is not sure how many simulation runs they will need to perform each year. What is the range of total cost if the number of simulation runs varies from 10,000 to 20,000 runs per year? For what range of activity (number of simulation runs per year) is purchasing a supercomputer the lowest cost alternative?

2. Consider the supercomputer example from Exercise 1 above. The firm is not sure about some of the relevant costs. The following probability distributions reflect their beliefs about the uncertain costs: the annual operating and maintenance costs are uniformly distributed on the range [$150,000, $250,000]; the additional operating costs for simulation runs above 15,000 per year are uniformly distributed on the range [$500, $1500] (per run per year). Use the method of moments to estimate the mean and variance of the costs if the firm purchases the supercomputer and they perform 20,000 runs per year. Use Monte Carlo sampling to estimate the distribution of costs if the firm purchases the supercomputer and they perform 20,000 runs per year.

Prepare the cash flow statement (according to IFRS standards) for Stonechat plc for the year ended 31December Year 7. Stonechat plc’s income statement for the year ended 31 December Year 7 and thebalance sheet as at 31 December Year 6 and Year 7 are as follows. (12 points)

Income statement for the year ended 31 December Year 7

Balance sheets as at 31 December Year 6 and Year 7

• During Year 7, the business spent €67 million on additional plant and machinery.
• There were no other non-current asset acquisitions or disposals.
• There was no share issue for cash during the year. (There was a bonus issue of ordinary shares during theyear, but a bonus issue of ordinary shares has no cash flow effect.)
• A dividend of €60 million was paid.

Entries for Bonds Payable, including bond redemption

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Entries for Bonds Payable, including bond redemption

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Entries for Bonds Payable, including bond redemption

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Cash dividends of $71,390 were declared during the year. Cash dividends payable were $10,752 at the beginning of the year and $15,808 at the end of the year. The amount of cash for the payment of dividends during the year is a.$71,390 b.$60,638 c.$87,198 d.$66,334

The future worth in year 10 of an arithmetic gradient cash flow series for years 1 through 10 is $500,000. If the gradient increase each year, G, is $3,000, determine the cash flow in year 1 at an interest rate of 10% per year.

The future worth in year 10 of an arithmetic gradient cash flow series for years 1 through 10 is $750,000. If the gradient increase each year, G, is $2250, determine the cash flow in year 1 at an interest rate of 6% per year.