Your company has been doing well, reaching $1 million in earnings, and is considering launching a new product. Designing the new product has already cost $500,000. The company estimates that it will sell 800,000 units per year for $3.00 per unit and variable non-labor costs will be $1.00 per unit. Production will end after year 3. New equipment costing $1 million will be required (at year 0). The equipment will be depreciated using 100% bonus depreciation under the 2017 TCJA (i.e. the equipment can be completely depreciated in year 1). You think the equipment will be obsolete at the end of year 3 and plan to scrap it. Your current level of working capital is $300,000. The new product will require the working capital to increase to a level of $380,000 immediately, then to $400,000 in year 1, in year 2 the level will be $350,000, and finally in year 3 the level will return to $300,000. Your tax rate is 21%. The discount rate for this project is 10%. Do the capital budgeting analysis for this project and calculate its NPV.
Note: Assume that the equipment is put into use in year 1.

Hal​ Thomas, a 25​-year-old college​ graduate, wishes to retire at age 60. To supplement other sources of retirement​ income, he can deposit 2,200 each year into a​ tax-deferred individual retirement arrangement​ (IRA). The IRA will earn a return of 12​% over the next 35 years.

a.  If Hal makes annual​ end-of-year ​$2,200 deposits into the​ IRA, how much will he have accumulated by the end of his 60th ​year?

b.  If Hal decides to wait until age 35 to begin making annual​ $2,200 deposits into the​ IRA, how much will he have accumulated by the end of his 60th ​year?

c.  Using your findings in parts a and ​b, discuss the impact of delaying making deposits into the IRA for 10 years​ (age 25 to age 35​) on the amount accumulated by the end of​ Hal's 60th year.

d.  Rework parts a and b assuming that Hal makes all deposits at the​ beginning, rather than the​ end, of each year. Discuss the effect of​ beginning-of-year deposits on the future value accumulated by the end of​ Hal's 60th year.

1. In the following table, assume that someone retires in 2006 with an initial income payment of $25,000 per year in benefits. The benefit payment is then indexed to the Consumer Price Index (CPI) for the next 20 years. Assume also that the CPI would rise by 2% per year. Column (1) shows the value of the CPI in each year, using 2006 as the base year. Calculate the indexed nominal benefits by 2% per year in column (2), the real annual benefits in column (3), the indexed nominal benefits by 3% per year in column (4), and the real annual benefits in column (5).

A machine costing $213,800 with a four-year life and an estimated $19,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 487,000 units of product during its life. It actually produces the following units: 121,700 in 1st year, 123,800 in 2nd year, 121,100 in 3rd year, 130,400 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

Required: 1. Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

2.Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Units of production.

3.Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Double-declining-balance.

1. (10 pts) Brower, Inc. just constructed a manufacturing plant in Europe. The construction cost 10 million Euros. Brower intends to leave the plant open for three years. During the three years of operation, Euro cash flows are expected to be 1 million euros, 2 million euros, and 3 million euros, respectively. Operating cash flows will begin one year from today and are remitted back to the parent at the end of each year. At the end of the third year, Brower expects to sell the plant for 8 million euros. Brower has a required rate of return of 10 percent. The current exchange rate is $1.18/euro and the Euro is expected to depreciate to $1.15/euro in year 1, $1.14/euro in year 2 and $1.13/euro in year 3.

1. Determine the NPV for this project. Should Brower build the plant?

2. How would your answer change if the value of the euro was expected to appreciate from its current value of $1.18/euro to $1.21/euro in year 1, $1.23/euro in year 2 and $1.25/euro in year 3?

You need to consider two projects which have the following cash flows:

Project A requires an initial investment of $10,000 and will generate net cash flows of $5,000 at the end of year 1, $6,000 at the end of year 2, $7,000 at the end of year 3, and $8,000 at the end of year 4. At the end of year 2, maintenance costs of $8,000 will have to be disbursed.

Project B requires an initial investment of $15,500 and will generate starting at the end of each year, net cash flows of $6,000 per year for 6 years (first cash flow in year 1). It will incur maintenance costs of $8,000 at the end of year 3.

Assume that the required return is 12% per annum for both projects.

i. Draw timeline showing the cash flows of projects A and B?

ii. Find the NPV of projects A and B?

iii. Which project should be chosen if Projects A and B are mutually exclusive? Explain.

iv. Which project should be chosen if the Projects A and B are completely independent? Explain.

v. Based on the cash flows of project A, explain why IRR is not an appropriate evaluation technique for this project?

On April 1, Year 1, Marshall Company purchased a used delivery truck paying $23,000 cash and signing a Note Payable for the $14,000 for the remainder of the purchase cost. The Note Payable's interest rate was 6% and has a due date of April 1, Year 2. On the note's due date, Marshall must pay off the principal and the interest.

On April 1, Year 4, after using the truck for three years, the firm spent $4,500 on the truck. 40% of this amount was to repaint the truck to make its appearance like when purchased and the remainder was to install some navigation system to enable more efficient deliveries.

Marshall's fiscal year ends on December 31.

Q: On April 2, Year 4, what amount would appear in the PPE account as the cost basis of this truck?

Q: How much Interest Expense would appear in Marshall's income statement for the year ended December 31, Year 1?

Q: How much Interest Expense would appear in Marshall's income state for the year ended December 31, Year 2?

XYZ CORP, AN S CORP WITH ONE SHAREHOLDER, SAM:

YEAR 1:

TAX-EXEMPT INCOME         $5,000

ORDINARY INCOME              30,000

YEAR 2:

ORDINARY LOSS                 ($40,000)

CASH DISTRIBUTIONS         15,000

BEGINNING OF YEAR 1:

XYZ HAS AAA AND OAA OF $0, AND ACCUMULATED E&P OF $6,000.

SAM HAS STOCK BASIS OF $10,000 AND DEBT BASIS OF $12,000 (ON LOAN TO XYZ).

QUESTIONS:

A. WHAT IS SAM’S REPORTABLE ITEMS FROM XYZ FOR YEARS 1 AND 2.

                        (FILL-IN) Items reported by the shareholder SAM:

Year 1:

Ordinary income                                             $

Tax-exempt income                                            

Year 2:

Ordinary loss allowed                                    

B. WHAT ARE BALANCES IN XYZ ACCOUNTS AND SAM’S STOCK AND DEBT BASES AT END OF EACH YEAR.

(use accounts discussed – rows/columns – balances)

C. WHAT IF DISTRIBUTION IN YEAR 2 IS $35,000 INSTEAD OF $15,000?

                      (FILL-IN)           Items reported by the shareholder:

Year 1:

Year 2:

Dividend income                                             $

Ordinary loss allowed                                    

Remaining loss carries over                           

(and - use accounts discussed – rows/columns – balances)

In 2020 Coco Corporation signed a contract to construct a major office building for a developer.  The construction is expected to take 3 years.  The contract price is $50 million.  The actual costs incurred each year, the estimated costs of completing the project as of the end of each year, the progress billings for each year, and the collections of those billings each year are presented in the chart below.

1. Prepare, in good, easy-to-follow form, a schedule computing the amount of revenues or gross profit (your choice) to be recognized on this project in each year using the percentage-of-completion.
2. Prepare all the journal entries required in 2021 by the information provided.
3. Explain, precisely, the amounts to be reported in the 2020 income statement and the December 31, 2017 balance sheet for this contract.