A crane was recently purchased by a local construction company to assist with the construction of some newapartments. The crane company offers a protection plan that will pay for all the maintenance and repairs for the first fiveyears. The company plans on using the crane for 11 years. The repair costs are expected to average $24,000 per year atthe 6th year and 7th years, $30,000 per year in the 8th and 9th years, and $36,000 per year in the 10th and 11th years.Despite the uneven maintenance costs, the company plans on using financing to instead pay a uniform amount ofmoney each year to cover all maintenance over the 11 year life span. Assuming an interest rate of 5%, answer thefollowing questions: • Draw the cash flow diagram to illustrate the repair costs. How much money will the companyspend each year to cover all of the maintenance costs over the 11 year period?

The net amount of cash that an entity receives and expends throughout a given period. For a business…

Answered: A crane was recently purchased by a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cullumber, Inc. is considering the purchase of a warehouse directly across the street from its manufacturing plant. Cullumber currently warehouses its inventory in a public warehouse across town. Rent on the warehouse and delivering and picking up inventory cost Cullumber $50880 per year. The building will cost Cullumber $477000. Cullumber will depreciate the building for 20 years. At the end of 20 years, the building will have a $132500 salvage value. Cullumber's required rate of return is 12%. Click here to view the factor table. Using the present value tables, the building's net present value is (round to the nearest dollar) O $1017600. O $46077. O $393783. O $-83217.
A southwestern city that has 170,000 households is required to install treatment systems for the removal of arsenic from drinking water. The annual cost is projected to be $50 per household per year. Assume that one life will be saved every three years as a result of the arsenic removal system andthat the EPA values a human life at $4.8 million. Use a discount rate of 8% per year and assume the life is saved at the end of each three-year period.Utilize a conventional B/C ratio to determine if the project is economically justified.
Omni-Resistor, Incorporated specializes in waterproofing homes, office buildings and other structures. Recently it completed a waterproofing renovation for a building at a local university. The contract specifies that Omni-Resistor will receive a flat lump sum of $101,000 for the renovation, and an additional $2,600 if there is no water leaking through the roof within the first year after the renovation. The seller estimates that there is an 80% chance that no leakage will occur within the first year. Required: (a) Assuming Omni-Resistor uses the most likely value to estimate the variable consideration, calculate the transaction price. (b) Assuming Omni-Resistor determines transaction price as the “expected value” of the variable consideration, calculate the transaction price. (c) Assume Omni-Resistor uses the “expected value” approach, but is very uncertain of that estimate due to a lack of experience with similar renovations. Calculate the transaction price.
You must decide whether to buy, build or lease a building for your business needs over the next 10 years. If you decide to build, you must determine if it is better to buy an existing building and modify it or buy land and build one to match your needs. Leasing an appropriate building will cost $10,000 per month with an annual increase of 3% per year and will require some retrofitting to suit your needs ($700,000). Empty land will cost $2,500,000 and the construction of a new building would be $3,000,000. You can buy an existing building for $2,500,000 but you will have to modify it to your needs at a cost of $1,200,000. However, the building itself is quite old and will be at the end of its useful life when the ten years are up. You estimate that the land alone is worth $2,000,000. There is a municipal election scheduled in the next months. The frontrunner, who has an estimated 70% chance of winning, is prioritizing core services and the environment. If they win, there is a 65% chance…
The management of a condominium association anticipates a capital expenditure of $150,000 in 3 years for the purpose of painting the exterior of the condominium. To pay for this maintenance, a sinking fund will be set up that will earn interest at the rate of 5.6%/year compounded monthly. Determine the amount of each (equal) monthly installment the association will be required to deposit into the fund at the end of each month for the next 3 years. (Round your answer to the nearest cent.)
Fish-or-Cut-Bait excursion boats has just purchased a new 22 passenger skimmer for use over the next 10 years. The cost of the boat was $80,000. The income associated with the boat is expected to be $15,000 each year and the costs are estimated to be $2,000 the first year and increase by $500 per year each year thereafter. The salvage value of the boat is estimated to be $5,000. If the MARR is 5%, what is the payback for the boat?
A water pump to be used by the city’s maintenance department costs $10 000 new. A running-in period, costing $1000 immediately, is required for a new pump. Operating and maintenance costs average $500 the first year, increasing by $300 per year thereafter. The salvage value of the pump at any time can be estimated by the declining balance rate of 20 percent. Interest is at 10 percent. Using a spreadsheet, calculate the EAC for replacing the pump after one year, two years, etc. How often should the pump be replaced?
Luis is responsible for buying some specialized manufacturing equipment that has a purchase price of $10,000 and annual operating costs of $1000. The vendor is offering a special buyer incentive that provides free maintenance for the first four years. After that time, the maintenance is $500 per year over the 10-year life, and there is an overhaul expense in year 5 of $2000. The equipment has a salvage value of $1000. If the interest rate is 8%, what is the present value?
Yummy Food is expanding its business and wants to open a new facility to make frozen lasagna, which requires a new automated lasagna maker. A lasagna maker can be purchased for $350,000 or leased under a finance lease over 7 years, with lease payments to be made at the beginning of each year. If the company purchases the lasagna maker, it can be fully depreciated to zero using the straight-line method over seven years. The management expects the scrap/residual value of the lasagna maker to be $60,000 at the end of the lease. After a detailed analysis of the project, Yummy Food determines the appropriate after-tax cost of capital of the project to be 15% per annum. Yummy Food pays a corporate tax rate of 28% and it can borrow funds at a before-tax interest rate of 5% per annum. All cash-flows have been quoted on a before-tax basis. Given this information, what is the lease payment (per annum) that would make Yummy Food indifferent between leasing and borrow-to-buy the machine? (Using…
The department of transport will collect 5$ toll from each vehicle to recover the cost of a newly- built highway. In the first year (end of year 1), 10,000 cars are expected to use the highway followed by 4% annual increase in traffic due to the expansion of the city. Determine the equivalent present worth of this project over 20 years' time and at an interest rate of 8%?
Dog Care Co. wants to finance a new animal shelter by making eight annual deposits into a fund earning 11% compounded annually. The first four deposits are to be $19,000 each and will be paid at the beginning of the next four years. The last four deposits are to be $27,000 each and will be paid at the beginning of the last four years. The cost of the new animal shelter amounts to:
Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $450,000 and be depreciated to $0 over a 5-year period on a straight-line basis. The new store will require Benford to increase its net working capital by $450,000 at time 0.First-year sales are expected to be $1.05 million and to increase at an annual rate of 8 percent over the expected 10-year life of the store. Operating expenses (including lease payments but excluding depreciation) are projected to be $850,000 during the first year and to increase at a 7 percent annual rate. The salvage value of the store’s equipment and fixtures is anticipated to be $13,000 at the end of 10 years. Benford’s marginal tax rate is 40 percent. Calculate the store’s net present value, using an 18 percent required return. Use Table II to answer the question. Round your answer to the nearest dollar.$ Should Benford accept the…

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