James's House of Music wants to purchase Transposelt, a system that transposes any song in its database and prints sheet music in the requested key. This system allows singers to obtain sheet music in keys that are suitable to their vocal range. The software for the system costs $10,000; a new computer and a laser printer costing $3,500 will be needed to run the system. James estimates that the system will generate additional annual sales revenue of $23,000 and that annual cash expenditures will be $18,035. James uses straight-line depreciation. The software, computer, and printer will have a useful life of 5 years. The system will have a $150 salvage value at the end of its 5-year useful life. (a) Calculate the annual net operating income generated by the system. Annual net operating income $

James's House of Music wants to purchase Transposelt, a system that transposes any song in its database and prints sheet music in the requested key. This system allows singers to obtain sheet music in keys that are suitable to their vocal range. The software for the system costs $10,000; a new computer and a laser printer costing $3,500 will be needed to run the system. James estimates that the system will generate additional annual sales revenue of $23,000 and that annual cash expenditures will be $18,035. James uses straight-line depreciation. The software, computer, and printer will have a useful life of 5 years. The system will have a $150 salvage value at the end of its 5-year useful life. (a) Calculate the annual net operating income generated by the system. Annual net operating income $

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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Chris's House of Music wants to purchase Transposelt, a system that transposes any song in its database and prints sheet music in the requested key. This system allows singers to obtain sheet music in keys that are suitable to their vocal range. The software for the system costs $10,600; a new computer and a laser printer costing $4,100 will be needed to run the system. Chris estimates that the system will generate additional annual sales revenue of $23,600 and that annual cash expenditures will be $18,789. Chris uses straight-line depreciation. The software, computer, and printer will have a useful life of 5 years. The system will have a $200 salvage value at the end of its 5-year useful life. (a) Your answer is correct. Calculate the annual net operating income generated by the system. Annual net operating income $ 1911 eTextbook and Media Attempts: 1 of 3 used (b) Calculate the accounting rate of return of the system. Accounting rate of return
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Abuela Pastries operates a chain of bakeries and is considering the sprinkle cookie project, which would involve selling sprinkle cookies for 1 year. The firm expects sales of sprinkle cookies to be $158,000 and associated costs from flour, butter, sugar, etc. used to make sprinkle cookies to be $69,000. The firm believes that sales of frosted cookies, a type of cookie that is currently offered by the firm, would be $33,000 less with the addition of sprinkle cookies, and that costs associated with frosted cookies would be $18,000 less with the addition of sprinkle cookies. Finally, Abuela Pastries believes that selling sprinkle cookies would increase traffic to its bakeries, which would increase expected sales of bread, cakes, and other items by $23,000 more than it would be without the addition of sprinkle cookies, and increase costs of bread, cakes, and other items by $15,000 more than it would be without the addition of sprinkle cookies. What is the operating cash flow (OCF) for…
You work for a sprinkler manufacturing company. You want to propose the manufacturing of a new type of sprinkler head. The manufacuring process has a fixed annual cost of $750,000. If you want to charge $275 per sprinkler head, and each sprinkler head costs $205 to manufacture, how many sprinkler heads will you need to sell in order to break even? 9,882 sprinkler heads 10,715 sprinkler heads 7,515 sprinkler heads 15,312 sprinkler heads
Flyingbird Learning Ltd. is a company located in Virginia. The company develops online training platforms for corporate clients and provides content support on a subscription basis. Suppose during the summer, you started a part-time job at this company. The company is considering upgrading the computers used by its graphic design department. The five computers being replaced cost $12,000 two years ago and now have a net book value of $4,000 based on using straight-line depreciation, a three-year useful life, and $0 salvage value. Your analysis indicates that you can likely get about $500 per computer if you advertise them online. The new computers being considered will cost $15,000 in total and will also have a three-year useful life, with an estimated salvage value of $0. The new computers each include annual licences for graphic design software for which the company is currently paying a total of $500 per year, per computer. Required: a) You prepared an analysis of the financial…
Wilderness Products, Inc., has designed a self-inflating sleeping pad for use by backpackers and campers. The following information is available about the new product: An investment of $1,650,000 will be necessary to carry inventories and accounts receivable and to purchase some new equipment needed in the manufacturing process. The company’s required rate of return is 16% on all investments. A standard cost card has been prepared for the sleeping pad, as shown below: StandardQuantity or Hours StandardPrice or Rate StandardCost Direct materials 9 yards $ 3.30 per yard $ 29.70 Direct labor 5.4 hours $ 9.00 per hour 48.60 Manufacturing overhead (20% variable) 5.4 hours $ 13.00 per hour 70.20 Total standard cost per pad $ 148.50 The only variable selling and administrative expense will be a sales commission of $9 per pad. The fixed selling and administrative expenses will be $4,812,000 per year. Because the company manufactures many…
Pappy’s Potato has come up with a new product, the Potato Pet. Pappy’s paid $50,000 for a marketing survey to determine the viability of the product. It is estimated that Potato Pet will generate sales of $780,000 per year. The fixed costs associated with this project will be $178,000 per year and variable costs will amount to 30% of sales. The equipment will cost $600,000 and be depreciated in a straight-line manner for the four years of the project life. It can be sold for $20,000 at the end of the project. The initial net operating working capital is $40,000 and will increase by $10,000 each year until the end of the project. Pappy’s is paying a 25% tax rate and has a required rate of return of 6%.The NPV of this project is $__________________.
Smith Petroleum has spent $204,000 to refine 64,000 gallons of petroleum distillate, which can be sold for $6.20 per gallon. Alternatively, Smith can process the distillate further and produce 53,000 gallons of cleaner fluid. The additional processing will cost $1.80 per gallon of distillate. The cleaner fluid can be sold for $9.30 per gallon. To sell cleaner fluid, Smith must pay a sales commission of $0.10 per gallon and a transportation charge of $0.16 per gallon. Read the requirements. Requirement 1. Fill in the diagram for Smith's alternatives. Joint costs of producing 64,000 gallons of petroleum distillate The Cost of processing further Revenues from selling as is Revenues from processing further Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Smith's decision? is a sunk cost that C differ between the alternatives of selling as is or processing further. Consequently, this sunk cost is ▼to the sell-or-process-further decision.
The Sweetwater Candy Company would like to buy a new machine that would automatically “dip” chocolates. The dipping operation currently is done largely by hand. The machine the company is considering costs $210,000. The manufacturer estimates that the machine would be usable for five years but would require the replacement of several key parts at the end of the third year. These parts would cost $11,300, including installation. After five years, the machine could be sold for $6,000. The company estimates that the cost to operate the machine will be $9,300 per year. The present method of dipping chocolates costs $53,000 per year. In addition to reducing costs, the new machine will increase production by 5,000 boxes of chocolates per year. The company realizes a contribution margin of $1.65 per box. A 19% rate of return is required on all investments. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What are…
Milliken uses a digitally controlled dyer for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $450,000. It is expected to last 8 years and has a salvage value of $30,000. Increased before tax cash flow due to this dyer is $97,500 per year. Milliken's tax rate is 40%, and the after-tax MARR is 12%. Develop tables using a spreadsheet to determine the ATCF for each year and the after-tax PW, AW, IRR, and ERR after 8 years. Use straight-line depreciation (no half-year convention). Use MACRS-GDS and state the appropriate property class. Use double declining balance depreciation (no half-year convention, no switching). (Round your answer to 2 decimal places for PW and AW. Do not round intermediate computations. Tolerance is +/- 1.00. Round to 2 decimal places and present in percentage format IRR and ERR. Tolerance is +/- 0.02.) ERR IRR AW PW a. b.
The Tuff Wheels was getting ready to start its development project for a new product to be added to their small motorized vehicle line for children. The new product is called the Kiddy Dozer. It will look like a miniature bulldozer, complete with caterpillar tracks and a blade. Tuff Wheels has forecasted the demand and the cost to develop and produce the new Kiddy Dozer. The table below contains the relevant information for this project. Development cost $ 1,450,000 Estimated development time 9 months Pilot testing $ 200,000 Ramp-up cost $ 400,000 Marketing and support cost $ 150,000 per year Sales and production volume 60,000 per year Unit production cost $ 100 Unit price $ 225 Interest rate 8 % Tuff Wheels also has provided the project plan shown below. As can be seen in the project plan, the company thinks that the product life will be three years until a new product must be created. Assume all cash flows occur at the end…
The Sweetwater Candy Company would like to buy a new machine for $220,000 that automatically "dips" chocolates. The manufacturer estimates the machine would be usable for five years but would require replacement of several key parts costing $10,300 at the end of the third year. After five years, the machine could be sold for $6,000. The company estimates the cost to operate the machine will be $8,300 per year. The present labor-intensive method of dipping chocolates costs $43,000 per year. In addition to reducing costs, the new machine will increase production by 5,000 boxes of chocolates per year. The company realizes a contribution margin of $1.50 per box. A 15% rate of return is required on all investments. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What are the annual net cash inflows provided by the new dipping machine? 2. Compute the new machine's net present value.