On June 30, 2024, Prego Equipment purchased a precision laser - guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units - of -production method. During the six months of 2024, 24,000 units of product were produced. At the beginning of 2025, engineers estimated that the machine can realistically be used to produce only another 230,000 units. During 2025, 70,000 units were produced. The company would report depreciation in 2024 of: 1)$21,950 2)$18,000 3) $43,900 4)S36,000

On June 30, 2024, Prego Equipment purchased a precision laser - guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units - of -production method. During the six months of 2024, 24,000 units of product were produced. At the beginning of 2025, engineers estimated that the machine can realistically be used to produce only another 230,000 units. During 2025, 70,000 units were produced. The company would report depreciation in 2024 of: 1)$21,950 2)$18,000 3) $43,900 4)S36,000

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

Your company has been approached to bid on a contract to sell 5,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.4 million and will be depreciated on a straight- line basis to a zero salvage value. Production will require an investment in net working capital of $395,000 to be returned at the end of the project, and the equipment can be sold for $325,000 at the end of production. Fixed costs are $595,000 per year, and variable costs are $85 per unit. In addition to the contract, you feel your company can sell 12,300, 14,600, 19,200, and 11,600 additional units to companies in other countries over the next four years, respectively, at a price of $180. This price is fixed. The tax rate is 23 percent, and the required return is 10 percent. Additionally, the president of the company will undertake the project…
ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $823,400.00 work cell. Further, it will cost the firm $55,600.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $68,600.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $7,100.00. Finally, the firm will invest $11,400.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $905,000.00 with expenses estimated at 37.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 38.00%. The work cell is estimated to have a market value of $493,000.00 at the end of the fourth year. The firm expects to reclaim 86.00% of the…
B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $382,400 with a 8-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 152,960 units of the equipment's product each year. The expected annual income related to this equipment follows. Sales 239,000 Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses 84,000 47,800 23,900 155,700 Pretax income 83,300 24,990 Income taxes (30%) Net income 58,310 If at least an 8% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Chart Values are Based on: n = PV Factor Select Chart Amount Present Value X 106,110 Present Value of an Annuity of 1 0 Present…
Hurzdan, Inc., is considering the purchase of a $410,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $74,000 in five years. The computer will replace five office employees whose combined annual salaries are $119,000. The machine will also immediately lower the firm’s required net working capital by $94,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 24 percent. The appropriate discount rate is 14 percent. Calculate the NPV of this project.
Chesterfield Constructions Ltd owns a crane which is used based on contract for many construction projects. The entity purchased the crane in April 2015 at a cost of $2,200,000. The manager estimates that the crane will work on average for 250 days each year for 10 years and then it would be sold at an estimated residual price of $200,000. By 30 June 2020 the crane had worked for 1,200 days.In July 2020 the motor of the crane started to shudder and lose power. An assessment of the crane’s motor resulted in repairs that were required to maintain the motor at its normal efficiency. The cost of $6,000 comprised labour of $4,000 and replacement parts of $2,000. The repairs were completed by the end of July 2020. The management decided that the cost would be regarded as a capital cost. At the same time management estimated that the crane would now be used for a total of 3,000 days with an estimated residual value of $90,000. In the remainder of the financial year to 2021 the crane worked…
ABC Corporation has hired you to evaluate a new FOUR year project for the firm. The project will require the purchase of a $843,200.00 work cell. Further, it will cost the firm $51,700.00 to get the work cell delivered and installed. The work cell will be straight-line depreciated to zero with a 20-year useful life. The project will require new employees to be trained at a cost of $59,100.00. The project will also use a piece of equipment the firm already owns. The equipment has been fully depreciated, but has a market value of $5,200.00. Finally, the firm will invest $10,800.00 in net working capital to ensure the project has sufficient resources to be successful. The project will generate annual sales of $917,000.00 with expenses estimated at 38.00% of sales. Net working capital will be held constant throughout the project. The tax rate is 40.00%. The work cell is estimated to have a market value of $489,000.00 at the end of the fourth year. The firm expects to reclaim 85.00% of the…
New Style Corporation is a company that manufactures and sells chairs. On 1/1/20, the company purchases a piece of manufacturing equipment for $3,100,000 cash. The expected residual value is $200,000 and the useful life is 5 years. The company expects to produce 5,000,000 chairs with the equipment – 1,200,000 chairs in 2020; 1,400,000 chairs in 2021; 1,000,000 chairs in 2022; and 600,000 chairs 2023; and 800,000 chairs in 2024. Show your work. Round per unit to the nearest cent. Assume that New Style Corporation uses the Units-of-Activity method of depreciation.
Calligraphy Pens is deciding when to replace its old machine. The machine's current salvage value is $3,050,000. Its current book value is $1,800,000. If not sold, the old machine will require maintenance costs of $710,000 at the end of the year for the next five years. Depreciation on the old machine is $360,000 per year. At the end of five years, it will have a salvage value of $155,000 and a book value of $0. A replacement machine costs $4,650,000 now and requires maintenance costs of $380,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $745,000. It will be fully depreciated by the straight-line method. In five years, a replacement machine will cost $3,650,000. The company will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 25 percent and the appropriate discount rate is 7 percent. The company is assumed to earn sufficient revenues to…
On January 3, 2020, Gagne Inc. paid $320,000 for a computer system. In addition to the basic purchase price, the company paid a setup fee of $2,500, $6,400 sales tax, and $21,100 for special installation. Management estimates that the computer will remain in service for five years and have a residual value of $20,000. The computer will process 50,000 documents the first year, decreasing annually by 5,000 during each of the next four years (that is 45,000 documents in 2021, 40,000 documents is 2022, and so on). In trying to decide which depreciation method to use, the company president has requested a depreciation schedule for each of three depreciation methods (straight-line, units-of-production, and double-diminishing-balance). Before completing the straight-line depreciation schedule, calculate the straight-line depreciation rate. First, select the labels for the formula and then compute the rate. (Round the rate to two decimal places.) Date January 3, 2020 December 31, 2020 December…
International Soup Company is considering replacing a canning machine. The old machine is being depreciated by the straight-line method over a 10-year recovery period from a depreciable cost basis of $120,000. The old machine has 5 years of remaining usable life, at which time its salvage value is expected to be zero, and it can be sold now for $40,000. This machine has a current book value of $60,000. The purchase price of the new machine is $250,000. Employees were sent to a training course last year on how to use the new machine; this training cost $5,000. The new machine has a 5-year life and an expected salvage value of $25,000. Annual savings of electricity, labor, and materials from use of the new machine are estimated at $40,000. The company is in a 40 percent tax bracket and its cost of capital is 16 percent. The MACRS depreciation method will be used and the recovery percentages for assets with a 5-year class life are given below: What is the initial cash outlay for the…
A machine that produces cellphone components is purchased on January 1, 2024, for $171,000. It is expected to have a useful life of four years and a residual value of $12,000. The machine is expected to produce a total of 200,000 components during its life, distributed as follows: 40,000 in 2024, 50,000 in 2025, 60,000 in 2026, and 50,000 in 2027. The company has a December 31 year end. (a) Calculate the amount of depreciation to be charged each year, using each of the following methods: i. Straight-line method Straight-line method depreciation Senter a dollar amount per year per year ii. Units-of-production method (Round depreciation per unit to 3 decimal places, e.g. 15.257 and depreciation expense to 0 decimal places, e.g. 125.) Units-of-production method depreciation Senter a dollar amount per unit rounded to 3 decimal places per unit Year Depreciation Expense 2024 Senter a dollar amount 2025 Senter a dollar amount 2026 Senter a dollar amount 2027 Senter a dollar amount iii.…
Freida Company is considering an asset replacement project ofreplacing a control device. This old control device has been fullydepreciated but can be sold for $5,000. The new control device, whichis more automated, will cost $42,000. The new device’s installation andshipping costs will total $16,000. The new device will be depreciatedon a straight-line basis over its 2-year economic life to an estimatedsalvage value of $0. The actual salvage value of this device at the endof 2-year period (That is, the market value of the device at the end of2-year period) is estimated to be $4,000. If the replacement project is accepted, Freida will require an initial working capital investment of$2,200 (that is, adding $2,200 initially to its net working capital).During the 1st year of operations, Freida expects its annual revenue toincrease from $72,800 to $90,000. After the 1st year, revenues fromthe replacement are expected to increase at a rate of $2,800 a year forthe remainder of the project…