Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $515,000 cost with an expected four-year life and a $11,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Compute straight-line depreciation for each year of this new machine’s life.
2. Determine expected net income and net cash flow for each year of this machine’s life.
3. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year.
4. Compute this machine’s accounting rate of return, assuming that income is earned evenly throughout each year.
5. Compute the net present value for this machine using a discount rate of 7% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the asset’s life.)

Hat Tricks Company (HTC) is a Buffalo, New York, manufacturer of hats and gloves. Recently, the company purchased a new machine to aid in producing the hat product lines. Production efficiency on the new machine increases with the workforce experience. It has been shown that as cumulative output on the new machine increases, average labor time per unit decreases up to the production of at least 3,200 units. As HTC’s cumulative output doubles from a base of 100 units produced, the cumulative average labor time per unit declines by a learning rate of 90%.

HTC has developed a new style of men’s hat to be produced on the new machine. One hundred of these hats can be produced in a total of 10 labor hours. All other direct costs to produce each hat are $25 per hat, excluding direct labor cost. Direct labor cost per hour is $84. Fixed costs are $8,000 per month, and HTC has the capacity to produce 3,200 hats per month.

Required:

HTC plans to set the selling price for the new men’s hat at 200% of direct production cost. If the company is planning to sell 100 hats, what is the selling price? If the plan is to sell 800 hats, what should be the selling price? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

RP owned residential real estate with a $726,000 adjusted basis that was condemned by City Q because it needed the land for a new convention center. RP received $1,028,000 condemnation proceeds for the real estate. Assume that RP would elect to defer gain recognition when possible.

a. Assume RP spent $269,000 of the proceeds to expand its inventory and the remaining $759,000 to purchase new residential real estate. Calculate RP’s gain or loss realized, gain or loss recognized, and tax basis in the inventory and new real estate.

b. How would your answer to part a change if RP’s basis in the condemned real estate were $906,000 rather than $726,000?

c. How would your answer to part a change if RP invested the entire condemnation proceeds plus an additional $132,000 cash in new residential real estate?

Assume RP spent $269,000 of the proceeds to expand its inventory and the remaining $759,000 to purchase new residential real estate. Calculate RP’s gain or loss realized, gain or loss recognized, and tax basis in the inventory and new real estate.

Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has assembled the following information: Present Truck New Truck Purchase cost (new) $ 28,000 $ 38,000 Remaining book value $ 15,000 Overhaul needed now $ 14,000 Annual cash operating costs $ 14,500 $ 13,000 Salvage value-now $ 10,000 Salvage value-five years from now $ 9,000 $ 12,000 If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck is purchased, it will be used for five years, after which it will be traded in on another truck. The new truck would be diesel-operated, resulting in a substantial reduction in annual operating costs, as shown above. The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 13% discount rate. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required:

1. What is the net present value of the “keep the old truck” alternative?

2. What is the net present value of the “purchase the new truck” alternative?

3. Should Bilboa Freightlines keep the old truck or purchase the new one?

Business Case:
The Managerial Accounting Department at your company has been engaged by the Production Department for
assistance in evaluating a purchase decision. The equipment the production department is currently utilizing is outdated
and has become costly to maintain. New machines would also provide increased efficiencies leading to increased sales.
Due to this, the department is considering replacing all equipment with new machines.
Data:
- Cost of Current Machines: $800,000
- Cost of New Machines: $1,250,000
- Annual Maintenance on Current Machines: $125,000
- Annual Maintenance on New Machines: $54,000
- Salvage Value of Current Machines: $325,000
- Immediate employee training cost on new machines: $15,000
- Working Capital needed for new machines: $50,000
- Would be needed once machines are purchased and working capital released after 5 years
- Increased sales opportunity provided by new machines: $200,000 first year and growing at 5% per year
after
- Company’s Required Rate of Return: 10%
- Contribution margin: 47%
- Depreciation and income taxes should be ignored.

1. Explain to me the decision you are assisting the department with and at a high level and
how you will assist.
2. Define in your own words: Relevant Costs/Revenues (look to previous chapters to assist), Net Present
Value, Internal Rate of Return, and Contribution Margin.
3. Identify and list the relevant costs and revenues to be included in the decision. For this week you only
need to list the name or description of the expense.

A​ company's old antihistamine formula provided relief for 68​% of the people who used it. The company tests a new formula to see if it is​ better, and gets a​ P-value of 0.29. State the null and alternative hypotheses. Is it reasonable to conclude that the new formula and the old one are equally​ effective? Explain. What is the null​ hypothesis? Upper H 0 : ▼ p ModifyingAbove p with caret y overbar mu ▼ not equals less than less than or equals greater than or equals greater than equals ▼ 29 71 0.68 0.29 What is the alternative​ hypothesis? Upper H Subscript Upper A Baseline : ▼ p y overbar mu ModifyingAbove p with caret ▼ equals greater than or equals greater than less than less than or equals not equals ▼ 29 71 0.68 0.29 Choose the correct answer below. A. Since the​ P-value is greater than ​0.05, it seems that the new formula is more effective than the old one. B. It is not reasonable to conclude that the new formula and the old one are equally effective. There is a 29​% chance the new formula is better than the old one. C. It is not reasonable to conclude that the new formula and the old one are equally effective. The​ P-value cannot suggest this conclusion. D. Since the​ P-value is greater than ​0.05, it seems that the new formula is equally effective as the old one. Click to select your answer.

Conch Republic spent $750,000 to develop a prototype for a new smart phone that has all the features of the existing one but adds new features such as wifi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smart phone. Conch Republic can manufacture the new smart phone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively. The unit price of the new smart phone will be $485. The necessary equipment can be purchased for $34.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.5 million. Net working capital for the smart phones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial out-lay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent. Shelly has asked Jay to prepare a report that answers the following questions:

e. How sensitive is the NPV to changes in the price of the new smart phone?

f. How sensitive is the NPV to changes in the quantity sold?

g. Should Conch Republic produce the new smart phone?

Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has assembled the following information:

If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck is purchased, it will be used for five years, after which it will be traded in on another truck. The new truck would be diesel-operated, resulting in a substantial reduction in annual operating costs, as shown above.

The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 13% discount rate.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. What is the net present value of the “keep the old truck” alternative?

2. What is the net present value of the “purchase the new truck” alternative?

3. Should Bilboa Freightlines keep the old truck or purchase the new one?

Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has assembled the following information:

If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck is purchased, it will be used for five years, after which it will be traded in on another truck. The new truck would be diesel-operated, resulting in a substantial reduction in annual operating costs, as shown above.

The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 9% discount rate.

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. What is the net present value of the “keep the old truck” alternative?

2. What is the net present value of the “purchase the new truck” alternative?

3. Should Bilboa Freightlines keep the old truck or purchase the new one?

Hat Tricks Company (HTC) is a Buffalo, New York, manufacturer of hats and gloves. Recently, the company purchased a new machine to aid in producing the hat product lines. Production efficiency on the new machine increases with the workforce experience. It has been shown that as cumulative output on the new machine increases, average labor time per unit decreases up to the production of at least 3,200 units. As HTC’s cumulative output doubles from a base of 100 units produced, the cumulative average labor time per unit declines by a learning rate of 80%.

HTC has developed a new style of men’s hat to be produced on the new machine. One hundred of these hats can be produced in a total of 40 labor hours. All other direct costs to produce each hat are $12 per hat, excluding direct labor cost. Direct labor cost per hour is $25. Fixed costs are $8,000 per month, and HTC has the capacity to produce 3,200 hats per month.

Required:

HTC plans to set the selling price for the new men’s hat at 200% of direct production cost. If the company is planning to sell 100 hats, what is the selling price? If the plan is to sell 800 hats, what should be the selling price? (Do not round intermediate calculations. Round your answers to 2 decimal places.)