MANAGERIAL ACCOUNTING F/..(LL)-W/ACCESS
5th Edition
ISBN: 9781260696318
Author: Noreen
Publisher: MCG
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Chapter 7C, Problem 7C.1E
To determine
Concept Introduction:
The
The net present value of the investment.
Expert Solution & Answer
Answer to Problem 7C.1E
The net present value of the investment is $145,511.
Explanation of Solution
The net present value of the investment is calculated as follows:
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Initial investment (I) | $ (2,000,000) | |||||
| Net operating income (A) | $ 300,000 | $ 300,000 | $ 300,000 | $ 300,000 | $ 300,000 | |
| Income tax (B) = (A*30%) | $ 90,000 | $ 90,000 | $ 90,000 | $ 90,000 | $ 90,000 | |
| Income after tax (C) = (A-B) | $ 210,000 | $ 210,000 | $ 210,000 | $ 210,000 | $ 210,000 | |
| $ 400,000 | $ 400,000 | $ 400,000 | $ 400,000 | $ 400,000 | ||
| Cash inflows after tax (E) = (C+D) | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | |
| Net | $ (2,000,000) | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 | $ 610,000 |
| PV of $ 1(13%) (G) | 1.00000 | 0.88496 | 0.78315 | 0.69305 | 0.61332 | 0.54276 |
| PV = F*G | $ (2,000,000) | $ 539,823 | $ 477,719 | $ 422,761 | $ 374,124 | $ 331,084 |
| Net present value (Sum of PVs) | $ 145,511 |
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Students have asked these similar questions
CODE 14
On August 1, 2010, Cheryl Newsome established Titus Realty, which completed the
following transactions during the month:
a. Cheryl Newsome transferred cash from a personal bank account to an account to
be used for the business in exchange for capital stock, $25,000.
b. Paid rent on office and equipment for the month, $2,750.
c. Purchased supplies on account, $950.
d. Paid creditor on account, $400.
c. Earned sales commissions, receiving cash, $18,100.
f. Paid automobile expenses (including rental charge) for month, $1,000, and miscel-
laneous expenses, $600.
g. Paid office salaries, $2,150.
h. Determined that the cost of supplies used was $575.
i. Paid dividends, $2,000.
REQUIREMENTS:
1. Determine increase - decrease of each account and new balance
2. Prepare 3 F.S: Income statement; Retained Earnings Statement; Balance Sheet
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Assume that TDW Corporation (calendar-year-end) has 2024 taxable income of $952,000 for purposes of computing the
§179 expense. The company acquired the following assets during 2024: (Use MACRS Table 1, Table 2, Table 3, Table 4,
and Table 5.)
Asset
Machinery
Computer equipment
Furniture
Total
Placed in
Service
September 12
February 10
April 2
Basis
$ 2,270,250
263,325
880,425
$ 3,414,000
b. What is the maximum total depreciation, including §179 expense, that TDW may deduct in 2024 on the assets it placed in service in
2024, assuming no bonus depreciation?
Note: Round your intermediate calculations and final answer to the nearest whole dollar amount.
Maximum total depreciation deduction (including §179 expense)
Evergreen Corporation (calendar-year-end) acquired the following assets during the current year: (Use MACRS Table 1 and
Table 2.)
Date Placed in
Asset
Machinery
Service
October 25
Original
Basis
$ 120,000
Computer equipment
February 3
47,500
Used delivery truck*
August 17
Furniture
April 22
60,500
212,500
The delivery truck is not a luxury automobile.
Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.
b. What is the allowable depreciation on Evergreen's property in the current year if Evergreen does not elect out of bonus depreciation
and elects out of §179 expense?
Chapter 7C Solutions
MANAGERIAL ACCOUNTING F/..(LL)-W/ACCESS
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