A company is evaluating the purchase of Machine A. The new machine would cost $120,000 and would be depreciated for tax purposes using the straight-line method over an estimated ten-year life to its expected salvage value of $20,000. The new machine would require an addition of $30,000 to working capital. In each year of Machine A’s life, the company would reduce its pre-tax costs by $40,000. The company has a 12% cost of capital and is in the 35% marginal tax bracket. (using Excel)
a. Identify the incremental cash flows from investing in Machine A.
b. Calculate the investment’s net present value (NPV).
c. Calculate the investment’s internal rate of return (IRR).
d. Should the company purchase Machine A? Why or why not?
(Organizing cash flows, NPV, IRR) This problem follows Problem 13. It is now five years later. The company did buy Machine A, but just this week Machine β came on the market; Machine β could be purchased to replace Machine A. If acquired, Machine β would cost $80,000 and would be depreciated for tax purposes using the straight-line method over an estimated five-year life to its expected salvage value of $20,000. Machine β would also require $30,000 of working capital but would save an additional $20,000 per year in pre-tax operating costs. Machine A’s salvage value remains $20,000, but it could be sold today for $40,000.(USING EXCEL)
a. Identify the incremental cash flows from converting to Machine B.
b. Calculate this investment’s net present value (NPV).
c. Calculate this investment’s internal rate of return (IRR).
d. Should the company convert to Machine B? Why or why not?
In: Finance
7. Which of the following is not a type of responsibility center?
A. concentrated cost center B. Investment center C. profit center D. cost center
8. A responsibility center in which managers are held accountable for both revenues and expenses is called a _______
A. discretionary cost center B. revenue center C. cost center D. profit center
9. The amount of income a given division is expected to earn in excess of a firm's minimum return goal is called:
A. return on investment B. residual income C. allocated costs D. transfer pricing
10. The measure of the percentage of income generated by profits that were invested in capital assets is called:
A. return on investment B. residual income C. allocated costs D. transfer pricing
11. Costs that a company or manager can influence are called:
A. discretionary costs B. fixed costs C. variable costs D. controllable costs
12. A transfer pricing arrangement that uses the price that would be charged to an external customer is a:
A. market-based approach B. negotiated approach C. cost approach D. decentralized approach
In: Accounting
Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis
Mackinaw Inc. processes a base chemical into plastic. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 74,000 units of product were as follows:
| Standard Costs | Actual Costs | |
|---|---|---|
| Direct materials | 251,600 lbs. at $5.40 | 249,100 lbs. at $5.20 |
| Direct labor | 18,500 hrs. at $17.30 | 18,930 hrs. at $17.70 |
| Factory overhead | Rates per direct labor hr., | |
| based on 100% of normal | ||
| capacity of 19,310 direct | ||
| labor hrs.: | ||
| Variable cost, $4.80 | $87,910 variable cost | |
| Fixed cost, $7.60 | $146,756 fixed cost |
Each unit requires 0.25 hour of direct labor.
Required:
a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using minus sign and an unfavorable variance as a positive number.
Direct Materials Price Variance
Direct Materials Quantity Variance
Total Direct Materials Cost Variance
b. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sig and an unfavorable variance as a positive number.
Direct Labor Rate Variance
Direct Labor Time Variance
Total Direct Labor Cost Variance
c. Determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
Variable factory overhead controllable variance
Fixed factory overhead volume variance
Total factory overhead cost variance
In: Accounting
Beta Industries is considering a project with an initial cost of $6.9 million. The project will produce cash inflows of $1.52 million a year for seven years. The firm uses the subjective approach to assign discount rates to projects. For this project, the subjective adjustment is +2.2 percent. The firm has a pretax cost of debt of 9.1 percent and a cost of equity of 17.7 percent. The debt-equity ratio is .57 and the tax rate is 34 percent. What is the net present value of the project? (Round the answer to the nearest $100.)
|
$2,500 |
||
|
-$698,400 |
||
|
-$187,100 |
||
|
$48,200 |
||
|
$333,300 |
In: Finance
In: Accounting
A Company manufactures a product A. The company estimates the cost function for the total costs. The cost driver is number of units. The following informations were collected:
Month Units Total Costs
January 3,560 $242,400
February 3,800 $252,000
March 4,000 $260,000
April 3,600 $244,000
May 3,200 $228,000
June 3,040 $221,600
Compute a cost function using the high-low method.
In: Accounting
In: Finance
Corporation has a project with the initial cost of $150. It will generate the cash flows of $50, $100, and $150 in years 1, 2 and 3, respectively, which is the internal rate of return (IRR) of project?
In: Finance
In: Finance
Your company is considering a machine that will cost $ 4,520 at Time 0 and which can be sold after 3 years for $ 872 . To operate the machine, $ 490 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 3. The machine will produce sales revenues of $ 1,178 /year for 3 years; variable operating costs (excluding depreciation) will be 41 percent of sales. Operating cash inflows will begin 1 year from today (at Time 1). The machine is in the 3-year MACRS class. The MACRS class has depreciation of 33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The company has a 31 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative, and a 10 percent cost of capital. Inflation is zero. What are the terminal cash flows associated with ending this project? Note, I want only the Year 3 terminal cash flows, not the year 3 operating cash flows. Show your answer to the nearest $.01 Do not use the $ symbol in your answer
In: Finance