# Managerial Accounting 1B Ch24

Question
Managerial Accounting 1B

Financial and Managerial Accounting

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Chapter 24

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.

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.)

Payback period

b.

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.)

Payback period

2.

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.

Year 1

Year 2

Year 3

Year 4

Year 5

Total

Net cash flows

\$

30,000

\$

20,000

\$

30,000

\$

60,000

\$

19,000

\$

159,000

Compute the payback period for this investment. (Round your intermediate calculations to 3 decimal places and final answer to 1 decimal place.)

Payback period

3.

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.

Year 1

Year 2

Year 3

Year 4

Year 5

Net incomes

\$

20,000

\$

50,000

\$

100,000

\$

75,000

\$

200,000

Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and final answer to 2 decimal places.)

Payback period

4.

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

5.

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)

Sales

\$

150,000

Costs

Materials, labor, and overhead (except depreciation)

80,000

Depreciation on new equipment

20,000

15,000

Total costs and expenses

115,000

Pretax income

35,000

Income taxes (30%)

10,500

Net income

\$

24,500

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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