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 21.41P
NPV, inflation and taxes. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully
- 1. Given the preceding information, what is the
net present value of the new scales? Ignore taxes.Required
- 2. Assume the $30,000 cost savings are in current real dollars and the inflation rate is 4%. Recalculate the NPV of the project.
- 3. Based on your answers to requirements 1 and 2, should Fancy Foods buy the new meat scales?
- 4. Now assume that the company’s tax rate is 25%. Calculate the NPV of the project assuming no inflation.
- 5. Again assuming that the company faces a 25% tax rate, calculate the NPV of the project under an inflation rate of 4%.
- 6. Based on your answers to requirements 4 and 5, should Fancy Foods buy the new meat scales?
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. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return.
Q. Assume the $30,000 cost savings are in current real dollars and the inflation rate is 4%. Recalculate the NPV of the project.
. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return.
Q. Again assuming that the company faces a 25% tax rate, calculate the NPV of the project under an inflation rate of 4%.
. Fancy Foods is considering replacing all 12 of its meat scales with new, digital ones. The old scales are fully depreciated and have no disposal value. The new scales cost $120,000 (in total). Because the new scales are more efficient and more accurate than the old scales, Fancy Foods will have annual incremental cash savings from using the new scales in the amount of $30,000 per year. The scales have a 6-year useful life and no terminal disposal value and are depreciated using the straight-line method. Fancy Foods requires a 6% real rate of return.
Q. Given the preceding information, what is the net present value of the new scales? Ignore taxes.
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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