Assume you have a flower shop and you bought a delivery van for $37,000. You expect the van to remain in service forthree years (123,000 km). At the end of its useful life, you estimate that the van's residual value will be $1,330. Youestimate the van will travel 31,000 km the first year, 51,000 km the second year, and 41,000 km the third year. Preparean estimate of the depreciation expense per year for the van under the three depreciation methods. Show yourcomputations.Which method do you think tracks the useful life cost on the van most closely? How does management determine whichdepreciation method to use?Begin by calculating straight-line depreciation expense for each year. (Round the amounts for depreciation expenseto the nearest whole dollar.)Year 1Year 2Year 3IIIIMatur==1111Depreciation expenseeraa

DEPRECIATION EXPENSEDepreciation means gradual decrease in value of assets due to normal wear and…

Answered: Assume you have a flower shop and you…

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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Carla Vista Unlimited is considering purchasing an additional delivery truck that will have a seven-year useful life. The new truck will cost $44,900. Cost savings with this truck are expected to be $13,700 for the first two years, $9,500 for the following two years, and $5,400 for the last three years of the truck's useful life. What is the payback period for this project? (Round answer to 2 decimal places, e.g. 52.75.) Payback period years What is the discounted payback period for this project with a discount rate of 10 percent? (Round answer to 2 decimal places, e.g. 52.75.) Discounted payback period years
Your company is considering the development of a new product. In evaluating the proposed project, your company has collected the following information: The company estimates that the project will last for five years. The company will need to purchase new machinery that has an up-front cost of $300 million. The machinery will be depreciated on a straight-line basis to zero over five years. At the end of the project, the machinery can be sold at an estimated market price of $50 million. Production of the new product will take place in a recently vacated facility that the company owns. Otherwise, the facility can be leased out to collect $5 million in rent per year for the company. The project will require a $50 million investment in inventory, and the company expects that its accounts payable will rise by $10 million as well. At the end of the project, the working capital will have been completely recovered. The company estimates that sales the new product will be $195 million each of…
You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $100,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $57,000. The machine would require a $9,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $51,000 per year. The marginal tax rate is 25%, and the WACC is 9%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. What are the project's annual cash flows during Years 1, 2, and 3? Do not round…
The initial cost of a new machine is $10,000. The annual operating cost is $1,000/yr for first 3 years, and then becomes $3,000/yr after that. The machine needs a major repair at the end of 5th year, which costs $5,000. The machine has 10 years useful life with salvage value of $4,000. Calculate EUAC for keeping the machine for 10 years. (i=10%/yr)
You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $116,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $57,000. The machine would require a $4,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $48,000 per year. The marginal tax rate is 25%, and the WACC is 8%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. How should the $4,500 spent last year be handled? Only the tax effect of the research expenses should be included in the analysis. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. Last year's expenditure is considered…
If a garden center is considering the purchase of a new tractor with an initial investment cost of $113,000, and the center expects a return of $32,000 in year one, $19,000 in years two and three, $17,000 in years four and five, and $9,000 in year six and beyond, what is the payback period? years
You are evaluating a potential purchase of several light - duty trucks. The initial cost of the trucks will be $194,000. The trucks fall in the MACRS 5-year class that allows depreciation of 20% the first year, 32% the second year, 19 % the third year, 12 % the fourth year, 11% the fifth year, and 6% the sixth year. You expect to sell the trucks for 29, 100 at the end of five years. The expected revenue associated with the trucks is $155,000 per year with annual operating costs of $81,000. The firm's marginal tax rate is 25.0% . What is the after - tax cash flow associated with the sale of the equipment? Group of answer choices $21, 825 $24, 735 $17, 460 $13,095 $7,275
The annual operating costs of Machine A are $2,000. The machine will perform satisfactorily over the next five years and has an estimated market value (MV) of $3,000 at the end of its useful life. A salesperson for another company is offering a replacement, Machine B, for $14,000, with a MV of $1,400 after five years. Annual operating costs for Machine B will only be $1,500. It is believed that $10,000 could be obtained for the old machine A if it were sold now. If the before-tax MARR is 11% per year, determine whether the old machine A should be replaced by the new machine B.
Baird Rentals can purchase a van that costs $110,000; it has an expected useful life of five years and no salvage value. Baird uses straight-line depreciation. Expected revenue is $40,425 per year. Assume that depreciation is the only expense associated with this Investment. Required a. Determine the payback period. Note: Round your answer to 1 decimal place. b. Determine the unadjusted rate of return based on the average cost of the investment. Note: Round your answer to 1 decimal place. (l.e., .234 should be entered as 23.4). a. Payback period b. Unadjusted rate of return years %
You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $162,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $111,000. The machine would require a $9,000 increase in net operating working capital (increased Inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $42,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? 1. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. II. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow.…
Your company is purchasing a new machine to make toys. The machine costs $1,866,000 today and will be depreciated straight-line over 5 years to a salvage value of $100,000. You anticipate that the machine can be sold in 5 years for $169,000. The machine will allow your company to increase its production and associated revenues by $1,374,000 each year. The incremental yearly cost of goods sold for these additional widgets is $588,000, and the incremental SGA expense associated with selling these toysis $142,000 per year. The new machine will require an initial one-time increase in working capital, mainly raw material inputs, of $93,000. The working capital will be recaptured at the end of the project in 5 years. The firm’s marginal tax rate is 31% and the discount rate is 5%. What is the NPV of the project?
Cullumber Lumber, Inc; is considering purchasing a new wood saw that costs $65000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per year, and other cash expenses will be $10,000 per year. The machine is expected to sell for $4500 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Cullumber’s tax rate is 26 percent, and it’s opportunity cost of capital is 13.10 percent. What is the project’s NPV?

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