The annual depreciation schedule. Introduction: MACRS depreciation method: MACRS stands for Modified Accelerated Cost Recovery System, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with predetermined depreciation periods. Depreciation schedule: A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as the depreciation schedule.

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Answer 1

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for Modified Accelerated Cost Recovery System, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with predetermined depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as the depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents transferred in and out of a business is termed as cash flow.

Working capital:

A measure that helps a company calculate its liquidity is termed as working capital. It is the difference in a companyâ€™s current assets and its current liabilities.

c.

Summary Introduction

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the new equipment should be purchase by the DataPoint Engineering or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and that of cash outflows. It is used in capital budgeting and planning investments to assess the benefits and losses of any project or investment.

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Johnson Chemicals is considering an investment project. The project requires an initial $3 million outlay for equipment and machinery. Sales are projected to be $1.5 million per year for the next four years. The equipment will be fully depreciated straight-line by the end of year 4. Cost of goods sold and operating expense (not including depreciation) are predicted to be 30% of sales. The equipment can be sold for $800,000 at the end of year 4. Johnson Chemicals also needs to add net working capital of $100,000 immediately. The net working capital will be recovered in full at the end of the fourth year. Assume the tax rate is 40% and the cost of capital is 10%.What is the NPV of this investment? Group of answer choices $89,210 $53,931 $75,909 $184,482

Prescott Corporation is considering an investment in new equipment costing $928,000. The equipment will be depreciated on a straight-line basis over a ten-year site and is expected to have a residual value of $106.000. The equipment is expected to generate net cash inflows of $144,000 for each of the first five years and $102,000 for each of the last five years. What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.) OA. 7.89% OB. 9.63% OC. 9.39 % OD 9.05%

Prescott Corporation is considering an investment in new equipment costing $912,000. The equipment will be depreciated on a straight-line basis over a ten-year life and is expected to have a residual value of $92,000. The equipment is expected to generate net cash inflows of $140,000 for each of the first five years and $100,000 for each of the last five years. What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.) OA. 8.59% OB. 8.66% OC. 8.99% OD. 7.57% C

Answer 2

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for Modified Accelerated Cost Recovery System, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with predetermined depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as the depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents transferred in and out of a business is termed as cash flow.

Working capital:

A measure that helps a company calculate its liquidity is termed as working capital. It is the difference in a companyâ€™s current assets and its current liabilities.

c.

Summary Introduction

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the new equipment should be purchase by the DataPoint Engineering or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and that of cash outflows. It is used in capital budgeting and planning investments to assess the benefits and losses of any project or investment.

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Answer 3

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for Modified Accelerated Cost Recovery System, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with predetermined depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as the depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents transferred in and out of a business is termed as cash flow.

Working capital:

A measure that helps a company calculate its liquidity is termed as working capital. It is the difference in a companyâ€™s current assets and its current liabilities.

c.

Summary Introduction

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the new equipment should be purchase by the DataPoint Engineering or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and that of cash outflows. It is used in capital budgeting and planning investments to assess the benefits and losses of any project or investment.

Expert Solution & Answer

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Answer 4

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for Modified Accelerated Cost Recovery System, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with predetermined depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as the depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents transferred in and out of a business is termed as cash flow.

Working capital:

A measure that helps a company calculate its liquidity is termed as working capital. It is the difference in a companyâ€™s current assets and its current liabilities.

c.

Summary Introduction

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the new equipment should be purchase by the DataPoint Engineering or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and that of cash outflows. It is used in capital budgeting and planning investments to assess the benefits and losses of any project or investment.

Expert Solution & Answer

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Answer 5

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for Modified Accelerated Cost Recovery System, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with predetermined depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as the depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents transferred in and out of a business is termed as cash flow.

Working capital:

A measure that helps a company calculate its liquidity is termed as working capital. It is the difference in a companyâ€™s current assets and its current liabilities.

c.

Summary Introduction

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the new equipment should be purchase by the DataPoint Engineering or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and that of cash outflows. It is used in capital budgeting and planning investments to assess the benefits and losses of any project or investment.

Answer 6

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for Modified Accelerated Cost Recovery System, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with predetermined depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as the depreciation schedule.

Answer 7

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for Modified Accelerated Cost Recovery System, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with predetermined depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as the depreciation schedule.

Answer 8

b.

Summary Introduction

To calculate: The annual cash flow including working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents transferred in and out of a business is termed as cash flow.

Working capital:

A measure that helps a company calculate its liquidity is termed as working capital. It is the difference in a companyâ€™s current assets and its current liabilities.

Answer 9

b.

Summary Introduction

To calculate: The annual cash flow including working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents transferred in and out of a business is termed as cash flow.

Working capital:

A measure that helps a company calculate its liquidity is termed as working capital. It is the difference in a companyâ€™s current assets and its current liabilities.

Answer 10

c.

Summary Introduction

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

Answer 11

c.

Summary Introduction

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

Answer 12

d.

Summary Introduction

To calculate: The NPV of the investment and whether the new equipment should be purchase by the DataPoint Engineering or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and that of cash outflows. It is used in capital budgeting and planning investments to assess the benefits and losses of any project or investment.

Answer 13

d.

Summary Introduction

To calculate: The NPV of the investment and whether the new equipment should be purchase by the DataPoint Engineering or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and that of cash outflows. It is used in capital budgeting and planning investments to assess the benefits and losses of any project or investment.

Answer 14

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Answer 15

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Answer 16

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Answer 17

Ch. 12 - Prob. 1DQ Ch. 12 - Why does capital budgeting rely on analysis of...Ch. 12 - Prob. 3DQ Ch. 12 - Prob. 4DQ Ch. 12 - What does the term mutually exclusive investments...Ch. 12 - Prob. 6DQ Ch. 12 - If a corporation has projects that will earn more...Ch. 12 - What is the net present value profile? What three...Ch. 12 - How does an assetâ€™s ADR (asset depreciation...Ch. 12 - Prob. 1P

Solution Summary: The author explains the MACRS depreciation method and formulae used for the calculation of the annual cash flow and the weighted average cost of capital.

Concept explainers

Videos

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

Want to see the full answer?

Chapter 12 Solutions

Solution Summary: The author explains the MACRS depreciation method and formulae used for the calculation of the annual cash flow and the weighted average cost of capital.

Concept explainers

Videos

To calculate: The weighted average cost of capital. Introduction: Weighted average cost of capital (WACC): It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.

Want to see the full answer?

Chapter 12 Solutions

To calculate: The weighted average cost of capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the average rate at which a company needs to pay all its shareholders in return for financing its assets. It is primarily referred to as the cost of capital of the firm.