Hammer corporation wants to purchase a new machine for $303,000. Management predicts that the machine will produce sales of $216,000 each year for the next four years. TB MC Qu. 12-65 (Algo) Expected net income (after tax) in Year 3 if the proposed investment is undertakenHammer Corporation wants to purchase a new machine for $303,000. Management predicts that the machine will produce sales of$216,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excludingdepreciation) totaling $71,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000.Hammer's combined income tax rate, t, is 40%.What is the expected net income (after tax) in Year 3 if the proposed investment is undertaken? Round answer to nearest whole dollar.Multiple Choice

Summary of the relevant information provided in the question : New Machine Cost = $ 303,000 Sales…

Answered: at is the expected net income (after…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,810,000 and will last for 4 years. Variable costs are 37 percent of sales, and fixed costs are $179,000 per year. Machine B costs $4,730,000 and will last for 8 years. Variable costs for this machine are 32 percent of sales and fixed costs are $117,000 per year. The sales for each machine will be $9.46 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? EAC If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? EAC
A company is considering the purchase of a new machine for $87,000. Management predicts that the machine can produce sales of $23,200 each year for the next eight years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $4,350 per year plus depreciation of $10,800 per year. The company's tax rate is 40%. What is the payback period for the new machine? a.4.62 years b.7.00 years c.18.01 years d.10.81 years e.5.57 years
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.
Bilk.com, an online retailing company, proposes to spend $50 million on servers and other computer equipment for managing its Web site and processing orders. The company will depreciate the equipment over five years to zero. However, the company actually expects that it will be able to sell the equipment for $25 million at the end of five years. This equipment is expected to generate $30 million in sales in the first year and $21 million in cash operating costs in the first year. Both revenue and cash operating costs are expected to grow at an annual rate of 3% throughout the useful life of the equipment. There is no initial working capital requirement. However, the company will need to have a working capital balance at the end of each year equal to 20% of that year’s sales. The working capital can be fully recovered at the end of the project’s life. Bilk.com’s tax rate is 40%, and the cost of capital for this project is 8%. Calculate the cash flows in year 1. a. $2,825,000…
Agate Marketing Inc. intends to distribute a new product. It is expected to produce net returns of $13,000 per year for the first four years and $11,000 per year for the following three years. The facilities required to distribute the product will cost $36,000, with a disposal value of $9,600 after seven years. The facilities will require a major facelift costing $10,000 each after three years and after five years. If Agate requires a return on investment of 15%, should the company distribute the new product? If NPV is negative your answer must include the negative sign. Net Present Value (NPV) = Should the decision be Accept or Reject? Fir
Martin Enterprises needs someone to supply it with 130,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $1,850,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $140,000. Your fixed production costs will be $625,000 per year, and your variable production costs should be $8.87 per carton. You also need an initial investment in net working capital of $295,000. If your tax rate is 21 percent and you require a 10 percent return on your investment, what bid price per carton should you submit?
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $ 3,210,000 and will last for six years. Variable costs are 37 percent of sales, and fixed costs are $350,000 per year. Machine B costs $5,455,000 and will last for nine years. Variable costs for this machine are 32 percent of sales and fixed costs are $240,000 per year. The sales for each machine will be $12.4 million per year. The required return is 9 percent, and the tax rate is 24 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the EAC for each machine.
The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs $380,000 initially and is expected to increase revenue $125,000 per year every year. The software andinstallation from Vendor B costs $280,000 and is expected to increase revenue $95,000 per year. Manuel’s uses a 4-year planning horizon and a 10%/year MARR. Solve, a. What is the future worth of each investment?b. What is the decision rule for determining the preferred investment basedon future worth ranking? c. Which (if either) ERP system should Manuel purchase?
The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital a. Calculate the NPV (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.) b. Should Elite purchase the automobiles? O a. a)NPV = $82,286 ± 0.1% and b)NO O b. a)NPV = -$72,386 ±…
Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 7,600 units at $38 each. The new manufacturing equipment will cost $123,500 and is expected to have a 10-year life and a $9,500 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $6.50 Direct materials 21.00 Fixed factory overhead-depreciation 1.50 Variable factory overhead 3.30 Total $32.30 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answers to the nearest dollar. Natural Foods Inc.Net Cash Flows Year 1 Years 2-9 Last Year Initial investment $fill in the blank 1…
Firm Z has invested $4 million in marketing campaign to assess the demand for a product Manish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $20 million. The firm spends $15 million immediately and equipment that will be depreciated using MACRS depreciation 20. Additionally, it will use some fully depreciated existing equipment that has a market value of $4 million. Finally, they will have no incremental cash or inventory requirements. But receivables are expected to account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods sold between year one and four. All accounts payables and receivables will be settled at the end of your five. Based on this information andCost of debt is 2.45%, cost of equity is 11%, cost of preferred stock is 5% and WACC is 5.42%., find the NPV of the project. Identify the IRR of the project. Will you accept this project? Why?…
Gibson Corporation’s balance sheet indicates that the company has $580,000 invested in operating assets. During the year, Gibson earned operating income of $67,280 on $1,160,000 of sales. Required Compute Gibson’s profit margin for the year. Compute Gibson’s turnover for the year. Compute Gibson’s return on investment for the year. Recompute Gibson’s ROI under each of the following independent assumptions:(1) Sales increase from $1,160,000 to $1,392,000, thereby resulting in an increase in operating income from $67,280 to $76,560.(2) Sales remain constant, but Gibson reduces expenses, resulting in an increase in operating income from $67,280 to $69,600.(3) Gibson is able to reduce its invested capital from $580,000 to $464,000 without affecting operating income.

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS