Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 21, Problem 21.28E
DCF, accrual accounting
- 1. Calculate
net present value . - 2. Calculate
internal rate of return . - 3. Calculate accrual accounting rate of return based on net initial investment.
- 4. Calculate accrual accounting rate of return based on average investment.
- 5. You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods?
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Laverty Clinic plans to purchase a new centrifuge machine for its New York facility. The machinecosts $94,000 and is expected to have a useful life of 6 years, with a terminal disposal value of $9,000.Savings in cash operating costs are expected to be $24,900 per year. However, additional working capitalis needed to keep the machine running efficiently. The working capital must continually be replaced, so aninvestment of $4,000 needs to be maintained at all times, but this investment is fully recoverable (will be“cashed in”) at the end of the useful life. Laverty Clinic’s required rate of return is 12%. Ignore income taxesin your analysis. Assume all cash flows occur at year-end except for initial investment amounts. LavertyClinic uses straight-line depreciation for its machines.
Q. Calculate internal rate of return.
Laverty Clinic plans to purchase a new centrifuge machine for its New York facility. The machinecosts $94,000 and is expected to have a useful life of 6 years, with a terminal disposal value of $9,000.Savings in cash operating costs are expected to be $24,900 per year. However, additional working capitalis needed to keep the machine running efficiently. The working capital must continually be replaced, so aninvestment of $4,000 needs to be maintained at all times, but this investment is fully recoverable (will be“cashed in”) at the end of the useful life. Laverty Clinic’s required rate of return is 12%. Ignore income taxesin your analysis. Assume all cash flows occur at year-end except for initial investment amounts. LavertyClinic uses straight-line depreciation for its machines.
Q. Calculate accrual accounting rate of return based on net initial investment.
Laverty Clinic plans to purchase a new centrifuge machine for its New York facility. The machinecosts $94,000 and is expected to have a useful life of 6 years, with a terminal disposal value of $9,000.Savings in cash operating costs are expected to be $24,900 per year. However, additional working capitalis needed to keep the machine running efficiently. The working capital must continually be replaced, so aninvestment of $4,000 needs to be maintained at all times, but this investment is fully recoverable (will be“cashed in”) at the end of the useful life. Laverty Clinic’s required rate of return is 12%. Ignore income taxesin your analysis. Assume all cash flows occur at year-end except for initial investment amounts. LavertyClinic uses straight-line depreciation for its machines.
Q. You have the authority to make the purchase decision. Why might you be reluctant to base your decisionon the DCF methods?
Chapter 21 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 21 - Capital budgeting has the same focus as accrual...Ch. 21 - List and briefly describe each of the five stages...Ch. 21 - Prob. 21.3QCh. 21 - Only quantitative outcomes are relevant in capital...Ch. 21 - How can sensitivity analysis be incorporated in...Ch. 21 - Prob. 21.6QCh. 21 - Describe the accrual accounting rate-of-return...Ch. 21 - Prob. 21.8QCh. 21 - Lets be more practical. DCF is not the gospel....Ch. 21 - All overhead costs are relevant in NPV analysis....
Ch. 21 - Prob. 21.11QCh. 21 - Distinguish different categories of cash flows to...Ch. 21 - Prob. 21.13QCh. 21 - How can capital budgeting tools assist in...Ch. 21 - Distinguish the nominal rate of return from the...Ch. 21 - A company should accept for investment all...Ch. 21 - Prob. 21.17MCQCh. 21 - Which of the following statements is true if the...Ch. 21 - Prob. 21.19MCQCh. 21 - Nicks Enterprises has purchased a new machine tool...Ch. 21 - Prob. 21.21ECh. 21 - Capital budgeting methods, no income taxes. Yummy...Ch. 21 - Capital budgeting methods, no income taxes. City...Ch. 21 - Prob. 21.24ECh. 21 - Capital budgeting with uneven cash flows, no...Ch. 21 - Comparison of projects, no income taxes. (CMA,...Ch. 21 - Payback and NPV methods, no income taxes. (CMA,...Ch. 21 - DCF, accrual accounting rate of return, working...Ch. 21 - Prob. 21.29ECh. 21 - Prob. 21.30ECh. 21 - Project choice, taxes. Klein Dermatology is...Ch. 21 - Prob. 21.32ECh. 21 - Selling a plant, income taxes. (CMA, adapted) The...Ch. 21 - Prob. 21.36PCh. 21 - NPV and AARR, goal-congruence issues. Liam...Ch. 21 - Payback methods, even and uneven cash flows. Sage...Ch. 21 - Replacement of a machine, income taxes,...Ch. 21 - Recognizing cash flows for capital investment...Ch. 21 - NPV, inflation and taxes. Fancy Foods is...Ch. 21 - NPV of information system, income taxes. Saina...
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