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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Textbook Question
Chapter 21, Problem 21.39P
Replacement of a machine, income taxes, sensitivity. (CMA, adapted) The Kuhl Brothers own a frozen custard ice cream shop. The brothers currently are using a machine that has been in use for the last 4 years. On January 1, 2017, the Kuhl Brothers are considering buying a new machine to make their frozen custard. The Kuhl Brothers have two options: (1) continue using the old freezing machine or (2) sell the old machine and purchase a new freezing machine. The seller of the new machine is not interested in a trade-in of Kuhl’s old machine. The following information has been obtained:
The Kuhl Brothers are subject to a 25% income tax rate. Any gain or loss on the sale of machines is treated as an ordinary tax item and will affect the taxes paid by the Kuhl Brothers in the year in which it occurs. The Kuhl Brothers have an after-tax required
- 1. The Kuhl Brothers ask you whether they should buy the new machine. To help in your analysis, calculate the following:
Required
- a. One-time after-tax cash effect of disposing of the old machine on January 1, 2017
- b. Annual recurring after-tax cash operating savings from using the new machine (variable and fixed)
- c. Cash tax savings due to differences in annual
depreciation of the old machine and the new machine - d. Difference in after-tax cash flow from terminal disposal of new machine and old machine
- 2. Use your calculations in requirement 1 and the
net present value method to determine whether the Kuhl Brothers should continue to use the old machine or acquire the new machine. - 3. How much more or less would the recurring after-tax cash operating savings of the new machine need to be for the Kuhl Brothers to earn exactly the 8% after-tax required rate of return? Assume that all other data about the investment do not change.
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(Multiple Choice Question)
Maria owns a Tasty Fries franchise, allowing her to operate up to 3 Tasty Fries locations in Vaughan. The franchise does not expire, but Maria expects she might sell her business after 10 years. A recent survey of Tasty Fries franchise owners found that most sold their locations after 15 years. Maria should
1. Start running her business, and then decide on a useful life for her franchise at the end of the first year
2. Not amortize her franchise, as it has an indefinite life span
3. Amortize her franchise over 10 years
4. Amortize her franchise over 15 years
5. None of the answers are correct
Lee and Barbara Fletcher own Boos and Roos Antiques and they have decided to sell the business so they can move to Sarasota, FL to be near their son and get away from winter once and for all. Boos and Roos is located in a small, stand-alone building that it owns. Lee and Barbara originally purchased the building for $275,000 and it is currently appraised at $675,000. The window treatments, furnishings, and display cabinets originally cost $200,000 and are currently valued at $188,700. The current inventory has a balance sheet value of $300,000 and its retail market value is typically 160% of its cost. Mary Ann expects the store to collect 90% of its accounts receivable of $20,000. The business has $16,000 in cash and $44,000 of debt, which will be assumed by the buyer. What is the market value of Boos and Roos?
Angus and his sister Oona operate a small charter flight service that takes tourists on sightseeing tours over the beautiful Margaree River on Cape Breton Island. At the end of 2009, they had one four-seater plane in the aircraft asset class with a UCC of $30 000. In 2010, they purchased a second plane for $50 000. Business was going well in 2011, so they sold the old plane they had in 2009 for $15 000 and bought a newer version for $64 000. What was the UCC balance in the aircraft asset class at the end of 2012? The CCA rate for aircraft is 25 percent.
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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