Homework Help is Here – Start Your Trial Now!
Business
Accounting
TB MC Qu. 12-83 (Algo) Estimated PV (present value) payback period: Plant Company Plant Company is contemplating the purchase of a new piece of equipment for $47,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $20,000, $10,000, $12,000, $7,000 and $5.000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1= 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 0.822; the PV annuity factor for 4%, 5 years 4.452.) At an after-tax discount rate of 4%, the estimated PV (present value) payback period, in years (rounded to two decimal places) is: Multiple Choice 3.07 years. 3.68 years 4.07 years. 4.45 years. More than 5 years.

TB MC Qu. 12-83 (Algo) Estimated PV (present value) payback period: Plant Company Plant Company is contemplating the purchase of a new piece of equipment for $47,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $20,000, $10,000, $12,000, $7,000 and $5.000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1= 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 0.822; the PV annuity factor for 4%, 5 years 4.452.) At an after-tax discount rate of 4%, the estimated PV (present value) payback period, in years (rounded to two decimal places) is: Multiple Choice 3.07 years. 3.68 years 4.07 years. 4.45 years. More than 5 years.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

1

TB MC Qu. 12-83 (Algo) Estimated PV (present value) payback period: Plant Company Plant Company is contemplating the purchase of a new piece of equipment for $47,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $20,000, $10,000, $12,000, $7,000 and $5,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1= 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) At an after-tax discount rate of 4%, the estimated PV (present value) payback period, in years (rounded to two decimal places) is: Multiple Choice 3.07 years. 3.68 years. 4.07 years. 4.45 years. More than 5 years.
Transcribed Image Text:TB MC Qu. 12-83 (Algo) Estimated PV (present value) payback period: Plant Company Plant Company is contemplating the purchase of a new piece of equipment for $47,000. Plant is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $20,000, $10,000, $12,000, $7,000 and $5,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years. Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1= 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) At an after-tax discount rate of 4%, the estimated PV (present value) payback period, in years (rounded to two decimal places) is: Multiple Choice 3.07 years. 3.68 years. 4.07 years. 4.45 years. More than 5 years.
Hammer Corporation wants to purchase a new machine for $298,000. Management predicts that the machine will produce sales of $205,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $72,000 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 50%. What is the estimated accounting (book) rate of return (ARR) for the proposed investment, based on average investment? (Round answer to nearest whole number/percentage.) Multiple Choice 8%. 10%. 13%. 20%. 30%.
Transcribed Image Text:Hammer Corporation wants to purchase a new machine for $298,000. Management predicts that the machine will produce sales of $205,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $72,000 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 50%. What is the estimated accounting (book) rate of return (ARR) for the proposed investment, based on average investment? (Round answer to nearest whole number/percentage.) Multiple Choice 8%. 10%. 13%. 20%. 30%.
Expert Solution
steps

Step by step

Solved in 4 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Financial Reporting in Hyperinflationary Economies
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
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