On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the co could use the funds to invest in $150,600 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data hav assembled: Cost of store equipment $150,600 Life of store equipment 16 years Estimated residual value of store equipment $18,400 Yearly costs to operate the warehouse, excluding depreciation of equipment $56,000 Yearly expected revenues-years 1-8 75,000 Yearly expected revenues-years 9-16 69,600 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Operate Invest in Differential Warehouse Bonds Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Costs to operate warehouse Cost of equipment less residual value Drofit (L Oss)

On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the co could use the funds to invest in $150,600 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data hav assembled: Cost of store equipment $150,600 Life of store equipment 16 years Estimated residual value of store equipment $18,400 Yearly costs to operate the warehouse, excluding depreciation of equipment $56,000 Yearly expected revenues-years 1-8 75,000 Yearly expected revenues-years 9-16 69,600 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Operate Invest in Differential Warehouse Bonds Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Costs to operate warehouse Cost of equipment less residual value Drofit (L Oss)

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

Information for Terra Corp. Terra Corp is considering the purchase of a machine that is expected to cost $180,000. The machine will require an additional $40,000 to have it shipped, modified, and installed. The purchase of this machine is expected to require additional working capital of $20,000 upfront, which will be liquidated when the machine is sold off. Terra expects to use the machine for 4 years, and then sell it for $95,000. The machine will be fully depreciated over the four years, at a constant rate. In each of the four years, Terra’s revenues are expected to be $85,000 higher than they would be without the machine. Annual operating costs (not including depreciation) will also be higher, however, to the extent of $19,000. The firm pays a 30% rate in taxes, and its cost of capital is 7.5% The net present value of the project is estimated to be: $34,774 $37,694 $23,976 $16,353 $1,337
On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $900,000 of 3% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled:Revenues/costs AmountCost of store equipment $900,000Life of store equipment 15 yearsEstimated residual value of equipment $45,000Annual store operating costs less depreciation 200,000Annual expected revenues in years 1-6 250,000Annual expected revenues in years 7-15 300,000Problem 1 Instructions a. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). b. Based on the results disclosed by the differential analysis, should the proposal be accepted? c. If the proposal is accepted, what would be the total estimated income…
The management of XYZ Beverage Company is considering to purchase a new equipment to increase the production and revenues. The useful life of the equipment is 10 years. Initial cost of equipment is $30.000. Expected annual cash flows from new equipment is 75.000. Annual cash Outflows are :Cost of ingredients: $45,000; Salaries expenses: $13,500; Maihtenance expenses: $1,500. Depreciation expense: $5,000. In that case what is payback time (as years) for this equipment? 171800 O A) 2,0 O B) 3,5 O C) 5,0 O D) 4,0 O E) 3,0
A restaurant project is being evaluated that owner wishes to operate for 6 years, which has an initial investment consisting of purchasing fixed assets with following characteristics:- Furniture and kitchen equipment: Cost of $360 million, with an economic useful life of 6 years, at end of which it is estimated that they will have a scrap value of $40 million.- Miscellaneous kitchen utensils: Cost of $120 million, with an economic useful life of 3 years and a scrap value of $ 0.In addition, at end of year 3 the kitchen utensils will have to be replaced for same amount and characteristics of initial investment, since they are highly fungible assets.Sales revenue is expected to be $400 million in year 1, $700 million in year 2 and $900 million from year 4 onwards. This expected behavior is due to belief that restaurant will gain prestige and sales over time.Cost of sales is projected as 40% of sales and variable selling and administrative expenses as 4% of sales. Latter correspond to…
Agranary purchases a conveyor used in the manufacture of grain for transporting, filling. or emptying. It is purchased and installed for $80,000 with a market value for salvage purposes that decreases at arate of 20% per year with a minimum of value $1.750, Operation and maintenance is expected to cost $15.000 in the first year, increasing $1.060 per year thereafter. The granary uses a MARR of 15%. What is the optimum replacement interval for the conveyor? years, Click here to access the TVM Factor Table Calculator For calculation purposes, use 5 decimal places as displayed in the factor table provided.
A new municipal refuse-collection truck can be purchased for $84,000. Its expected useful life is six years, at which time its market value will be zero. Annual receipts less expenses will be approximately $18,000 per year over the six-year study period. At MARR of 19%, calculate the return on investment of the project a. -35% b. -36% c. -37% d. none of the above
On October 1, Midway Distribution Company is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $150,400 of 5% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $150,400 Life of store equipment 16 years Estimated residual value of store equipment $19,000 Yearly costs to operate the store, excluding depreciation of store equipment $56,900 Yearly expected revenues—years 1-8 $74,100 Yearly expected revenues—years 9-16 $70,800 Required: Question Content Area 1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential…
Differential Analysis Involving Opportunity Costs On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $149,800 Life of store equipment 16 years Estimated residual value of store equipment $17,800 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,600 Yearly expected revenues—years 1-8 74,600 Yearly expected revenues—years 9-16 70,200 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.…
A company is planning to purchase a machine that will cost $39,552, have a six-year life, and will have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine? $ 144,000 Sales Costs: Manufacturing Depreciation on machine Selling and administrative expenses Income Multiple Choice 6.18 years. 12 36 veare $ 86,400 4,000 48,000 (138,400) $ 5,600
The company is considering a project involving the purchase of new equipment. Cost of equipment needed $420,000 Working capital needed $45,000 Overhaul of equipment in four years $35,000 Salvage value of the equipment in five years is $35,000 Annual revenues and costs: Sales revenues $385,000 Cost of goods sold $210,000 Out-of- pocket operating costs $65,000 Discount rate is 11 % . What is the net present value of the project? The internal rate of return is between what two whole discount rates?
The LJB Company must replace a freezer and is trying to decide betweenthe following two alternatives:Item Freezer A Freezer BInvestment required ($29,000) ($25,000)Annual electrical bill (3,000) (4,000)Salvage value 6,000 5,000Project life in years 11 11The LJB Company’s cost of capital is 8 percent.Which investment provides LJB with the lowest total cost?
Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years.The following information is available:Product X Selling price $50Variable cost 32Increase in fixed overhead (excluding depreciation of the new machine) is $90,000 per year.YearSales units 1 10,0002 15,0003 20,0004 20,0005 5,000 Machine A Machine BInitial cost ($000) 550 480Residual value 50 30The company’s cost of capital is 10%,Required:Evaluate each machine, using the following methods:Accounting rate of return Payback;Net present value. Discuss the importance of capital budgeting in organisations.