Question #2: Which Should We Buy?

• Using the EAC approach, which machine should we choose? Use the table below to plan your cash flows (Bold boxes are where #’s should be).
• Neither machine will have a differential impact on revenue. No change in NWC is required. The straight line depreciation rate is 20%, the required return is 10% and the tax rate is 40%. There is no salvage values for either machine.

The City of Oxbow General Fund has the following net resources at year-end: $253,000 unexpended proceeds of a state grant required by law to be used for health education. $13,000 of prepaid insurance. $603,000 rainy day fund approved by city council for use under specified circumstances. $202,000 budget stabilization fund to be used in the event of revenue shortfall. $279,000 provided for contractual obligations for capital projects. $29,000 unexpended proceeds of a tax required by law to be used for emergency 911 services. $1,625,000 total fund balance. Required: Prepare the fund balance section of the Balance Sheet.

"The A.M.I. Company is considering installing a new process machine for the firm's manufacturing facility. The machine costs $413,000 installed, will generate additional revenue of $85,000 per year, and will save $64,000 per year in labor and material costs. The machine will be financed by a $192,000 bank loan repayable in three equal annual installments with a 5% interest rate. The machine will be depreciated using seven-year MACRS. The useful life of the machine is 10 years when the machine will be sold for $26,000. The marginal tax rate is 40%. Compute the IRR of the investment. Enter your answer as a percentage between 0 and 100."

The following information is for X Company's two products, A and B:

$15,215 of Product A's fixed costs are avoidable; $33,034 of Product B's fixed costs are avoidable. X Company plans to drop Product B since it shows a loss and increase sales of Product A by $29,600. Accompanying the sales increase will be a fixed cost increase of $4,800. If X Company drops Product B and increases Product A sales, what will be the effect on firm profits?

"The A.M.I. Company is considering installing a new process machine for the firm's manufacturing facility. The machine costs $413,000 installed, will generate additional revenue of $85,000 per year, and will save $64,000 per year in labor and material costs. The machine will be financed by a $192,000 bank loan repayable in three equal annual installments with a 5% interest rate. The machine will be depreciated using seven-year MACRS. The useful life of the machine is 10 years when the machine will be sold for $26,000. The marginal tax rate is 40%. Compute the IRR of the investment. Enter your answer as a percentage between 0 and 100."

Bands’End Ltd has 6 shareholders, each of whom is a director involved in the day to day operations of the community. Landed Ltd has only 86 full-time employees each of whom has direct, personal contact with the directors.

The financial statements of Bands’ End Ltd for the year ended 30 June 2015 show:

Gross assets of $14,500,000 and

Gross revenue of $24,001,000.

Equity 5.5million

Explain, justifying your answer, if Bands’ End Ltd is required by the Corporations Act 2001 to produce an annual report according to AASB accounting standards for the year ending 30 June 2017?

SANoresta Inc, produces and sells cosmetic products. The company has just begun manufacturing a new line of moisturizer. The following cost and revenue data relate to February, the first month of production:

Determine the per unit cost under both variable costing and absorption costing and prepare the income statement for each costing method.

Price per unit is $52

On January 1, Espinoza Moving and Storage leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. If Espinoza’s revenues exceed a specified amount during the lease term, Espinoza will pay an additional $4,000 lease payment at the end of the lease. Espinoza estimates a 60% probability of meeting the target revenue amount. What amount should be added to the right-of-use asset and lease liability under the contingent rent agreement?

The managers of Courtney Cabinets are considering dropping one of their product lines. The product line typically has the following revenue and costs: Sales $120,000 Variable costs 90,000 Contribution margin 30,000 Fixed costs 35,000 Operating loss $ (5,000) If the product line is discontinued, $4,000 of the fixed costs would be avoided. Also, the freed-up capacity would generate $6,000 of additional contribution margin from the expansion of other product lines. If Courtney discontinues the product line, the effect on overall income will be A. $20,000 decrease B. $9,000 increase C. $10,000 decrease D. $12,000 decrease