Horngren's Accounting, The Financial Chapters (12th Edition)
12th Edition
ISBN: 9780134486789
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Chapter 26, Problem P26.39CT
Using Excel for capital budgeting calculations
Download an Excel template for this problem online in MyAccountingLab or athttp://www.pearsonhighered.com/Horngren
Glacier Creek Textiles is planning to purchase new manufacturing equipment. The equipment has an acquisition cost of $100,000, an estimated useful life of five years and no residual value. The company uses a 12%
| Year | Net |
Net |
| 0 | $(100,000) | |
| 1 | 25,000 | |
| 2 | 29,000 | |
| 3 | 26,000 | |
| 4 | 28,000 | |
| 5 | 35,000 |
Requirements
1. Compute the accounting rate of return.
2. Compute the
3. Compute the net present value of the investment using Excel's NPV function.
4. Compute the profitability index, rounded to two decimal places.
5. Compute the internal rate of
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Epiphany Industries is considering a new capital budgeting project that will last for three years. Epiphany plans on using
a cost of capital of 12% to evaluate this project. Based on extensive research, it has prepared the following incremental
cash flow projects:
Year
Sales (Revenues)
Cost of Goods Sold (50% of Sales)
Depreciation
= EBIT
0
A. $66,600
B. $55,500
C. $59,200
D. $74,000
Taxes (20%)
= unlevered net income
+ Depreciation
+ changes to working capital
- capital expenditures
The free cash flow for the last year of Epiphany's project is closest to:
1
150,000
75,000
20,000
55,000
11,000
44,000
20,000
- 5,000
- 90,000
2
150,000
75,000
20,000
55,000
11,000
44,000
20,000
- 5,000
3
150,000
75,000
20,000
55,000
11,000
44,000
20,000
10,000
Epiphany Industries is considering a new capital budgeting project that will last for three years. The projec Time left 1:29:41
initial investment of $90,000 in year 0. Epiphany plans on using an opportunity cost of capital of 12% to evaluate this
project. Based on extensive research, it has prepared the following incremental cash flow projections:
Sales (Revenues)
Cost of Goods Sold (50% of Sales)
Depreciation
EBIT
Taxes (30%)
Profit after tax
Changes in NOWC
The net present value (NPV) for Epiphany's Project is closest to:
a. $39,000
b. $14,348
c. $29,400
O d. $35,364
Year 1
125 000
-62 500
-30 000
32 500
-9 750
22 750
5 000
Year 2
125 000
-62 500
-30 000
32 500
-9 750
22 750
5 000
Year 3
125 000
-62 500
-30 000
32 500
-9 750
22 750
-10 000
Cash flows estimation and capital budgeting:You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,800.00, and it would cost another $2,760.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $2,350.00. The machine would require an increase in net working capital (inventory) of $800.00. The new machine would not change revenues, but it is expected to save the firm $23,845.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 35.00%.
a. What is the initial cash outlay? b. What is the free cash flow for year 1? c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)?
(please show your work in details and highlight your answers)
Chapter 26 Solutions
Horngren's Accounting, The Financial Chapters (12th Edition)
Ch. 26 - Prob. 1QCCh. 26 - Prob. 2QCCh. 26 - Prob. 3QCCh. 26 - Prob. 4QCCh. 26 - Prob. 5QCCh. 26 - Prob. 6QCCh. 26 - Prob. 7QCCh. 26 - The IRR is Learning Objective 4 the interest rate...Ch. 26 - Prob. 9QCCh. 26 - Ian Corp, is considering two expansion projects....
Ch. 26 - Prob. 1RQCh. 26 - Describe the capital budgeting process.Ch. 26 - Prob. 3RQCh. 26 - Prob. 4RQCh. 26 - Prob. 5RQCh. 26 - Prob. 6RQCh. 26 - What is the payback method of analyzing capital...Ch. 26 - Prob. 8RQCh. 26 - Prob. 9RQCh. 26 - What is the decision rule for payback?Ch. 26 - Prob. 11RQCh. 26 - What is the accounting rate of return?Ch. 26 - How is ARR calculated?Ch. 26 - Prob. 14RQCh. 26 - Prob. 15RQCh. 26 - What is an annuity? How does it differ from a lump...Ch. 26 - Prob. 17RQCh. 26 - Prob. 18RQCh. 26 - Prob. 19RQCh. 26 - Prob. 20RQCh. 26 - Prob. 21RQCh. 26 - Prob. 22RQCh. 26 - Prob. 23RQCh. 26 - Prob. 24RQCh. 26 - Prob. 25RQCh. 26 - Prob. 26RQCh. 26 - Prob. 27RQCh. 26 - Prob. 28RQCh. 26 - Prob. 29RQCh. 26 - Prob. 30RQCh. 26 - Prob. S26.1SECh. 26 - Prob. S26.2SECh. 26 - Prob. S26.3SECh. 26 - Prob. S26.4SECh. 26 - Prob. S26.5SECh. 26 - Prob. S26.6SECh. 26 - Prob. S26.7SECh. 26 - Using the payback and ARR methods to make capital...Ch. 26 - Prob. S26.9SECh. 26 - Prob. S26.10SECh. 26 - Prob. S26.11SECh. 26 - Prob. S26.12SECh. 26 - Prob. S26.13SECh. 26 - Prob. S26.14SECh. 26 - Prob. S26.15SECh. 26 - Prob. E26.16ECh. 26 - Prob. E26.17ECh. 26 - Prob. E26.18ECh. 26 - Prob. E26.19ECh. 26 - Prob. E26.20ECh. 26 - Using ARE to make capital investment decisions...Ch. 26 - Prob. E26.22ECh. 26 - Prob. E26.23ECh. 26 - Prob. E26.24ECh. 26 - Prob. E26.25ECh. 26 - Prob. E26.26ECh. 26 - Prob. E26.27ECh. 26 - Prob. E26.28ECh. 26 - Prob. P26.29APGACh. 26 - Prob. P26.30APGACh. 26 - Using payback, APR, NPV, IPP, and profitability...Ch. 26 - Using payback, ARP, and NPV with unequal cash...Ch. 26 - Prob. P26.33APGACh. 26 - Prob. P26.34BPGBCh. 26 - Prob. P26.35BPGBCh. 26 - Using payback, APR, NPV, IRR, and profitability...Ch. 26 - Prob. P26.37BPGBCh. 26 - Prob. P26.38BPGBCh. 26 - Using Excel for capital budgeting calculations...Ch. 26 - Prob. P26.40CPCh. 26 - Prob. 1CPCh. 26 - Prob. 2CPCh. 26 - Prob. 3CPCh. 26 - Prob. 4CPCh. 26 - Prob. 26.1TIATCCh. 26 - Prob. 26.1EICh. 26 - Prob. 26.1FC
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