1. A new operating system for an existing machine is expected to cost $650,000 and have a useful life of six years. The system yields an incremental after-tax income of $175,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $23,800.
2. A machine costs $540,000, has a $35,900 salvage value, is expected to last eight years, and will generate an after-tax income of $70,000 per year after straight-line depreciation.

Assume the company requires a 12% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

A. Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures?

B. Explain why price can be substituted for marginal revenue in the MR=MC rule when an industry is purely competitive

How does the cost of capital affect capital investments that the firm makes? Cost of Capital refers to the amount of money a company spends to get its operations underway and in order to earn profit they must surpass this cost. This cost of capital is determined by and makes up its overall capital structure. A company adjusts its debts and equities within the capital structure to minimize the cost of capital. This balance is important because as a company takes on more debt, the costs are cheaper than equity but it increases the risk of default and at a certain point the premium associated with the risk becomes higher than the cost of introducing new equities. A firm must learn to balance these debts and equities in order to prevent higher premiums and lower the cost of capital. Some examples of types of firms with high costs of capital would be chemical companies as they require high amounts of capital for research equipment and factories. The low cost of capital firms would be financial services. To give an example of how a company's cost of capital affects its investments if a firm has the option of investing in debt that has an after-tax cost of 7% and 10% for equities, at some point the premium associated with that cheaper debt prevents a company from continuing to use debt and will introduce new equities. A split could be 70% debt 30% Equities. The total costs associated with each represents its cost of capital.

21. When the activity level is measured by the number of products sold, the Cost of Goods Sold in a "merchandising" company would be considered a:

A. Fixed cost

B. Variable cost

C. Step cost

D. Mixed cost

Side Note: I'm a little confused about this question because I would think that the answer is B, variable cost. However, I'm not sure if since it's a company it might still have fixed costs, therefore making the answer mixed cost.

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.

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).

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.

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).

This problem follows Problem #2. It is now five years later. The company did buy Machine A, but just this week Machine B came on the market; Machine B could be purchased to replace Machine A. If acquired, Machine B 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 B 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 to-day for $40,000.

1. Identify the incremental cash flows from converting to Machine B
2. Calculate this investment’s net present value (NPV).
3. Calculate this investment’s internal rate of return (IRR).
4. Should the company convert to Machine B? Why or why not?

Use the following information to calculate the value of ending inventory and the cost of goods sold in March:

March 01: beginning inventory: 60 units @ $15 per unit

March 05: purchase of 140 units @ $15.50 per unit

March 14: sale of 190 units @ $19 per unit

March 27: purchase of 70 units @ $16 per unit

March 29: sale of 30 units @ $19.50 per unit

Under LIFO Periodic

Under LIFO Perpetual

Describe and record the flow of materials costs in job order cost accounting?

Bonita Co. is building a new hockey arena at a cost of $2,620,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,170,000 to complete the project. It therefore decides to issue $2,170,000 of 11%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 10%. Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method.