ᴀ ꜰᴜʀɴᴀᴄᴇ ʜᴀꜱ ɪɴᴛᴇʀɴᴀʟ ᴄᴏᴍʙᴜꜱᴛɪᴏɴ ᴛᴇᴍᴘᴇʀᴀᴛᴜʀᴇ ᴏꜰ 7000 ᴅᴇɢ. ᴄ ᴀɴᴅ ɪꜱ ʙᴇɪɴɢ ᴄᴏɴꜱɪᴅᴇʀᴇᴅ ꜰᴏʀ ɪɴᴄɪɴᴇʀᴀᴛɪᴏɴ ᴏꜰ ᴍᴇᴅɪᴄᴀʟ ᴡᴀꜱᴛᴇꜱ. ᴛʜᴇ ɪɴɪᴛɪᴀʟ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɪꜱ $300,000 ᴀɴᴅ ᴀɴɴᴜᴀʟ ʀᴇᴠᴇɴᴜᴇꜱ ᴀʀᴇ ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ʙᴇ $175,000 ᴏᴠᴇʀ ᴛʜᴇ ꜱɪx-ʏᴇᴀʀ ʟɪꜰᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ. ᴀɴɴᴜᴀʟ ᴇxᴘᴇɴꜱᴇꜱ ᴡɪʟʟ ʙᴇ $100,000 ᴀᴛ ᴛʜᴇ ᴇɴᴅ ᴏꜰ ᴇᴀᴄʜ ʏᴇᴀʀ. ᴛʜᴇ ʀᴇꜱᴀʟᴇ ᴠᴀʟᴜᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴀꜰᴛᴇʀ ꜱɪx ʏᴇᴀʀꜱ ɪꜱ $20,000. ᴅᴇᴛᴇʀᴍɪɴᴇ ᴛʜᴇ ꜰᴏʟʟᴏᴡɪɴɢ: ᴀ. ʀᴀᴛᴇ ᴏꜰ ʀᴇᴛᴜʀɴ ɪꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴏᴡɴᴇʀ ᴇxᴘᴇᴄᴛꜱ ᴛᴏ ᴇᴀʀɴ 12% ᴘᴇʀ ʏᴇᴀʀ. ʙ. ᴘᴀʏʙᴀᴄᴋ ᴘᴇʀɪᴏᴅ ᴏꜰ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ᴄ. ɪꜱ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɢᴏᴏᴅ ꜰᴏʀ ɪᴍᴘʟᴇᴍᴇɴᴛᴀᴛɪᴏɴ? ᴡʜʏ?
ᴀ ꜰᴜʀɴᴀᴄᴇ ʜᴀꜱ ɪɴᴛᴇʀɴᴀʟ ᴄᴏᴍʙᴜꜱᴛɪᴏɴ ᴛᴇᴍᴘᴇʀᴀᴛᴜʀᴇ ᴏꜰ 7000 ᴅᴇɢ. ᴄ ᴀɴᴅ ɪꜱ ʙᴇɪɴɢ ᴄᴏɴꜱɪᴅᴇʀᴇᴅ ꜰᴏʀ ɪɴᴄɪɴᴇʀᴀᴛɪᴏɴ ᴏꜰ ᴍᴇᴅɪᴄᴀʟ ᴡᴀꜱᴛᴇꜱ. ᴛʜᴇ ɪɴɪᴛɪᴀʟ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɪꜱ $300,000 ᴀɴᴅ ᴀɴɴᴜᴀʟ ʀᴇᴠᴇɴᴜᴇꜱ ᴀʀᴇ ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ʙᴇ $175,000 ᴏᴠᴇʀ ᴛʜᴇ ꜱɪx-ʏᴇᴀʀ ʟɪꜰᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ. ᴀɴɴᴜᴀʟ ᴇxᴘᴇɴꜱᴇꜱ ᴡɪʟʟ ʙᴇ $100,000 ᴀᴛ ᴛʜᴇ ᴇɴᴅ ᴏꜰ ᴇᴀᴄʜ ʏᴇᴀʀ. ᴛʜᴇ ʀᴇꜱᴀʟᴇ ᴠᴀʟᴜᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴀꜰᴛᴇʀ ꜱɪx ʏᴇᴀʀꜱ ɪꜱ $20,000. ᴅᴇᴛᴇʀᴍɪɴᴇ ᴛʜᴇ ꜰᴏʟʟᴏᴡɪɴɢ: ᴀ. ʀᴀᴛᴇ ᴏꜰ ʀᴇᴛᴜʀɴ ɪꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴏᴡɴᴇʀ ᴇxᴘᴇᴄᴛꜱ ᴛᴏ ᴇᴀʀɴ 12% ᴘᴇʀ ʏᴇᴀʀ. ʙ. ᴘᴀʏʙᴀᴄᴋ ᴘᴇʀɪᴏᴅ ᴏꜰ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ᴄ. ɪꜱ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɢᴏᴏᴅ ꜰᴏʀ ɪᴍᴘʟᴇᴍᴇɴᴛᴀᴛɪᴏɴ? ᴡʜʏ?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ᴀ ꜰᴜʀɴᴀᴄᴇ ʜᴀꜱ ɪɴᴛᴇʀɴᴀʟ ᴄᴏᴍʙᴜꜱᴛɪᴏɴ ᴛᴇᴍᴘᴇʀᴀᴛᴜʀᴇ ᴏꜰ 7000 ᴅᴇɢ. ᴄ ᴀɴᴅ ɪꜱ ʙᴇɪɴɢ ᴄᴏɴꜱɪᴅᴇʀᴇᴅ ꜰᴏʀ ɪɴᴄɪɴᴇʀᴀᴛɪᴏɴ ᴏꜰ ᴍᴇᴅɪᴄᴀʟ ᴡᴀꜱᴛᴇꜱ. ᴛʜᴇ ɪɴɪᴛɪᴀʟ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɪꜱ $300,000 ᴀɴᴅ ᴀɴɴᴜᴀʟ ʀᴇᴠᴇɴᴜᴇꜱ ᴀʀᴇ ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ʙᴇ $175,000 ᴏᴠᴇʀ ᴛʜᴇ ꜱɪx-ʏᴇᴀʀ ʟɪꜰᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ. ᴀɴɴᴜᴀʟ ᴇxᴘᴇɴꜱᴇꜱ ᴡɪʟʟ ʙᴇ $100,000 ᴀᴛ ᴛʜᴇ ᴇɴᴅ ᴏꜰ ᴇᴀᴄʜ ʏᴇᴀʀ. ᴛʜᴇ ʀᴇꜱᴀʟᴇ ᴠᴀʟᴜᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴀꜰᴛᴇʀ ꜱɪx ʏᴇᴀʀꜱ ɪꜱ $20,000. ᴅᴇᴛᴇʀᴍɪɴᴇ ᴛʜᴇ ꜰᴏʟʟᴏᴡɪɴɢ:
ᴀ. ʀᴀᴛᴇ ᴏꜰ ʀᴇᴛᴜʀɴ ɪꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴏᴡɴᴇʀ ᴇxᴘᴇᴄᴛꜱ ᴛᴏ ᴇᴀʀɴ 12% ᴘᴇʀ ʏᴇᴀʀ.
ʙ. ᴘᴀʏʙᴀᴄᴋ ᴘᴇʀɪᴏᴅ ᴏꜰ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ
ᴄ. ɪꜱ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɢᴏᴏᴅ ꜰᴏʀ ɪᴍᴘʟᴇᴍᴇɴᴛᴀᴛɪᴏɴ? ᴡʜʏ?
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