Managerial Accounting 1B
Financial and Managerial Accounting
1.Exercise 24-1 Payback period computation; even cash flows L.O. P1
Compute the payback period for each of these two separate investments:
A new operating system for an existing machine is expected to cost $260,000 and have a useful life of five years. The system yields an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000.(Round your answer to 2 decimal places.)
A machine costs $190,000, has a $10,000 salvage value, is expected to last nine years, and will generate an after-tax income of $30,000 per year after straight-line depreciation.(Round your answer to 1 decimal place.)
Exercise 24-2 Payback period computation; uneven cash flows L.O. P1
Wenro Company is considering the purchase of an asset for $90,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.
Net cash flows
Compute the payback period for this investment. (Round your intermediate calculations to 3 decimal places and final answer to 1 decimal place.)
Exercise 24-3 Payback period computation; declining-balance depreciation L.O. P1
A machine can be purchased for $300,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double-declining balance depreciation is applied, using a 5-year life and a $50,000 salvage value.
Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and final answer to 2 decimal places.)
Exercise 24-4 Accounting rate of return L.O. P2
A machine costs $500,000 and is expected to yield an after-tax net income of $15,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine’s accounting rate of return. (Omit the “%” sign in your response.)
Accounting rate of return
Exercise 24-6 Computing net present value L.O. P3
K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. K2B Co. concludes that it must earn at least a 8% return on this investment. The company expects to sell 96,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. (Use.mhhe.com/connect/0078110882/Images/tableb.3.JPG”>Table B.3)
Materials, labor, and overhead (except depreciation)
Depreciation on new equipment
Selling and administrative expenses
Total costs and expenses
Income taxes (30%)
Compute the net present value of this investment. (Round “PV Factor” to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the “$” sign in your response.)
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