X Company is considering the replacement of an existing machine. The new machine costs $1.8 million and requires installation costs of $250,000. The existing machine can be sold currently for $125,000 before taxes. The existing machine is 3 years old, cost $1 million when purchased, and has a $290,000 book value and a remaining useful life of 5 years. It was being depreciated under MACRS using a 5-year recovery period. If it is held for 5 more years, the machine’s market value at the end of year 5 will be zero. Over its 5-year life, the new machine should reduce operating costs by $650,000 per year, and will be depreciated under MACRS using a 5-year recovery period. The new machine can be sold for $150,000 net of removal and cleanup costs at the end of 5 years. A $30,000 increase in net working capital will be required to support operations if the new machine is acquired. The firm has adequate operations against which to deduct any losses experienced on the sale of the existing machine. The firm has a 15% cost of capital, is subject to a 40% tax rate and requires a 42-month payback period for major capital projects.

5-Year MACRS

Year 1　 20%

Year 2    32%

Year 3 19%

Year 4 12%

Year 5 12%

Year 6 5%

1. Should they accept or reject the proposal to replace the machine?

2. What is the NPV?

3. What is the IRR?

4. What is the payback period?

United Firm is planning to buy a new machine for $200,000. The firm’s tax rate is 40%, and its overall WACC is 10%. The new machine has an economic life of 4 years and the salvage value will be $25,000 after 4 years. United Firm is using MACRS 3-year class to depreciate its assets. (i.e. Year 1, depreciate rate is 33.33%, year 2 depreciate rate is 44.45%, year 3 depreciate rate is 14.81% and year 4 depreciation rate is 7.41%). It costs $40,000 for the shipping and installation. Each year, United Firm expects to get an incremental sale of 1,250 units from the new machine. Cost (excluding depreciation) will be $100 for each unit in the first year. It will then increase by 3% per year. Unit price starts at $200 per unit in the first year and will increase by 3% per year as well. In addition, net working capital would have to increase by an amount equal to 12% of sales revenues.

1. Calculate the annual sales revenues and costs (other than depreciation).
2. Construct annual incremental operating cash flow statements.
3. Estimate the required net working capital for each year, and the cash flow due to investments in net working capital.
4. Calculate the after-tax salvage cash flow.
5. Calculate the net cash flows for each year. Based on these cash flows, what are the project’s NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest the project should be undertaken?
6. What is the Equivalent Annual Cost of this project?

X Company is considering the replacement of an existing machine. The new machine costs $1.8 million and requires installation costs of $250,000. The existing machine can be sold currently for $125,000 before taxes. The existing machine is 3 years old, cost $1 million when purchased, and has a $290,000 book value and a remaining useful life of 5 years. It was being depreciated under MACRS using a 5-year recovery period. If it is held for 5 more years, the machine’s market value at the end of year 5 will be zero. Over its 5-year life, the new machine should reduce operating costs by $650,000 per year, and will be depreciated under MACRS using a 5-year recovery period. The new machine can be sold for $150,000 net of removal and cleanup costs at the end of 5 years. A $30,000 increase in net working capital will be required to support operations if the new machine is acquired. The firm has adequate operations against which to deduct any losses experienced on the sale of the existing machine. The firm has a 15% cost of capital, is subject to a 40% tax rate and requires a 42-month payback period for major capital projects.

5-Year MACRS

Year 120%

Year 232%

Year 319%

Year 412%

Year 512%

Year 65%

1. Should they accept or reject the proposal to replace the machine?

2. What is the NPV?

3. What is the IRR?

4. What is the payback period?

On January 1, Boston Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Borrowed $117,200 for nine years. Will pay $7,100 interest at the end of each year and repay the $117,200 at the end of the 9th year. Established a plant remodeling fund of $491,650 to be available at the end of Year 10. A single sum that will grow to $491,650 will be deposited on January 1 of this year. Agreed to pay a severance package to a discharged employee. The company will pay $76,100 at the end of the first year, $113,600 at the end of the second year, and $151,100 at the end of the third year. Purchased a $175,500 machine on January 1 of this year for $35,100 cash. A five-year note is signed for the balance. The note will be paid in five equal year-end payments starting on December 31 of this year.

Required:

1. In transaction (a), determine the present value of the debt. (Round your answer to nearest whole dollar.)

2-a. In transaction (b), what single sum amount must the company deposit on January 1 of this year? (Round your answer to nearest whole dollar.)

2-b. What is the total amount of interest revenue that will be earned? (Round your answer to nearest whole dollar.)

3. In transaction (c), determine the present value of this obligation.

4-a. In transaction (d), what is the amount of each of the equal annual payments that will be paid on the note?  

4-b. What is the total amount of interest expense that will be incurred?

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200.

The company expects to start the first quarter with 1,650 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,850 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

• Required 1
• Required 2
• Required 3

Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

.

Entries for Bonds Payable, including bond redemption The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: Year 1 July 1. Issued $7,000,000 of five-year, 11% callable bonds dated July 1, Year 1, at a market (effective) rate of 13%, receiving cash of $6,496,782. Interest is payable semiannually on December 31 and June 30. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $50,322 is combined with the semiannual interest payment. Dec. 31. Closed the interest expense account. Year 2 June 30. Paid the semiannual interest on the bonds. The bond discount amortization of $50,322 is combined with the semiannual interest payment. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $50,322 is combined with the semiannual interest payment. Dec. 31. Closed the interest expense account. Year 3 June 30. Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $301,930 after payment of interest and amortization of discount have been recorded. (Record the redemption only.) 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 $ 1,010,644 b. Year 2 $ 1,010,644 3. Determine the carrying amount of the bonds as of December 31, Year 2.

You observe the following term structure of interest rates (zero-coupon yields, also called "spot rates"). The spot rates are annual rates that are semi-annually compounded.

Compute the six-month forward curve, i.e. compute f(0,0.5,1.0), f(0,1.0,1.5), f(0,1.5,2.0), f(0,2.0,2.5), and f(0,2.5,3.0). Round to six digits after the decimal. Enter percentages in decimal form, i.e. enter 2.1234% as 0.021234.

In all the following questions, enter percentages in decimal form, i.e. enter 2.1234% as 0.021234. Assume semi-annual compounding.

Compute the one-year forward rate in six months, i.e. compute f(0,0.5,1.5)

Compute the one-year forward rate in one year, i.e. compute f(0,1.0,2.0)

Compute the one-year forward rate in two years, i.e. compute f(0,2.0,3.0)

Compute the 1.5-year forward rate in six months, i.e. compute f(0,0.5,2.0)

Compute the 1.5-year forward rate in one-year, i.e. compute f(0,1.0,2.5)

Compute the 1.5-year forward rate in 1.5-years, i.e. compute f(0,1.5,3.0)

Compute the two-year forward rate in six-months, i.e. compute f(0,0.5,2.5)

Compute the two-year forward rate in one-year, i.e. compute f(0,1.0,3.0)

Compute the 2.5-year forward rate in six-months, i.e. compute f(0,0.5,3.0)

1. Performed counseling services for $29,200 cash.
2. On February 1, Year 1, paid $20,400 cash to rent office space for the coming year.
3. Adjusted the accounts to reflect the amount of rent used during the year.

  
Required
Based on this information alone:
a. Record the events in general ledger accounts under an accounting equation.
b. Prepare an income statement, balance sheet, and statement of cash flows for the Year 1 accounting period.
c. Ignoring all other future events, what is the amount of rent expense that would be recognized in Year 2?

Prepare a balance sheet for the Year 1 accounting period. (Do not round intermediate calculations.)

• Prepare a statement of cash flows for the Year 1 accounting period. (Amounts to be deducted should be indicated with a minus sign.)

  	LIFE, INC. Statement of Cash Flows For the Year Ended December 31, Year 1 Cash flows from operating activities: Net cash flow from operating activities $0 Cash flows from investing activities Cash flows from financing activities Net change in cash 0 Ending cash balance $0

• Ignoring all other future events, what is the amount of rent expense that would be recognized in Year 2? (Do not round intermediate calculations.)

  	Rent expense to be recognized in Year 2

Steven Pinker is a 48-year-old bank manager. His wife Carol, 43 years old, works part-time at a daycare. They have three children, 19-year-old Sam, 16-year-old Sarah and 14-year-old Michael. All three children live with them. Steven's only income during the year was $115,000 from employment, Carol earned $12,000 from the daycare, Sam earned $10,000 from his job at Starbucks and Sarah earned $4,000 working part-time at McDonald's. Carol's 72-year-old mother, Ethel, also lives with the family. Ethel had an income of $18,000 during the year, entirely from CPP and OAS. Ethel had one of her legs amputated due to complications from diabetes during the year. It is the opinion of her doctor that she now qualifies for the disability tax credit. During the year Steven spent $13,000 on installing a wheelchair ramp at the back door and a walk-in bathtub in Ethel's bathroom. During the year Steven donated $4,000 to various registered charities. Steven also contributed $1,000 to the Green Party of Canada. Steven paid $10,400 intuition during the year for Sam to attend University full time. During the year, Steven spent the following amounts on medical costs for each family member: Steven $620 Carol 450 Sam 960 Sarah 1,750 Michael 920 Ethel 2,680 Calculate the maximum federal tax credits available to Steven Pinker. Show all calculations.

Problem 7-19A Determination of account balances and preparation of journal entries-percent of receivables allowance method of accounting for uncollectible accounts LO 7-2

The following information is available for Quality Book Sales’ sales on account and accounts receivable:

After several collection attempts, Quality Book Sales wrote off $3,050 of accounts that could not be collected. Quality Book Sales estimates that 4 percent of the ending accounts receivable balance will be uncollectible.

Required
a. Compute the following amounts:

1. (1) Using the allowance method, the amount of uncollectible accounts expense for Year 2.
2. (2) Net realizable value of receivables at the end of Year 2.

amount of uncollectible accounts

net realizable value

b. Record the general journal entries to:

1. (1) Record sales on account for Year 2.
2. (2) Record cash collections from accounts receivable for Year 2.
3. (3) Write off the accounts that are not collectible.
4. (4) Record the estimated uncollectible accounts expense for Year 2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
5. Record sales on account for Year 2.
6. Record cash collections from accounts receivable for Year 2.
7. record the entry for uncollectible accounts written off
8. Record the estimated uncollectible accounts expense for Year 2.