# Managerial Accounting 1B Ch24

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Managerial Accounting 1B

Financial
and Managerial Accounting

Chapter 24

1.Exercise 24-1
Payback period computation; even cash flows L.O. P1

 Compute the payback period for each of these two separate investments:

 a. A new operating system for an existing machine is expected to cost \$260,000 and have a useful life of five years. The system yields an incremental after-tax income of \$75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is \$10,000.(Round your answer to 2 decimal places.)

 Payback period

 b. A machine costs \$190,000, has a \$10,000 salvage value, is expected to last nine years, and will generate an after-tax income of \$30,000 per year after straight-line depreciation.(Round your answer to 1 decimal place.)

 Payback period

2.

Exercise 24-2 Payback period computation; uneven cash flows L.O.
P1

 Wenro Company is considering the purchase of an asset for \$90,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.

 Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows \$ 30,000 \$ 20,000 \$ 30,000 \$ 60,000 \$ 19,000 \$ 159,000

 Compute the payback period for this investment. (Round your intermediate calculations to 3 decimal places and final answer to 1 decimal place.)

 Payback period

3.

Exercise 24-3 Payback period computation; declining-balance
depreciation L.O. P1

 A machine can be purchased for \$300,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double-declining balance depreciation is applied, using a 5-year life and a \$50,000 salvage value.

 Year 1 Year 2 Year 3 Year 4 Year 5 Net incomes \$ 20,000 \$ 50,000 \$ 100,000 \$ 75,000 \$ 200,000

 Compute the machineâ€™s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and final answer to 2 decimal places.)

 Payback period

4.

Exercise 24-4 Accounting rate of return L.O. P2

 A machine costs \$500,000 and is expected to yield an after-tax net income of \$15,000 each year. Management predicts this machine has a 10-year service life and a \$100,000 salvage value, and it uses straight-line depreciation. Compute this machineâ€™s accounting rate of return. (Omit the “%” sign in your response.)

 Accounting rate of return

5.

Exercise 24-6 Computing net present value L.O. P3

 K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost \$240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. K2B Co. concludes that it must earn at least a 8% return on this investment. The company expects to sell 96,000 units of the equipmentâ€™s product each year. The expected annual income related to this equipment follows. (Use.mhhe.com/connect/0078110882/Images/tableb.3.JPG”>Table B.3)

 Sales \$ 150,000 Costs Materials, labor, and overhead (except depreciation) 80,000 Depreciation on new equipment 20,000 Selling and administrative expenses 15,000 Total costs and expenses 115,000 Pretax income 35,000 Income taxes (30%) 10,500 Net income \$ 24,500

 Compute the net present value of this investment. (Round “PV Factor” to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the “\$” sign in your response.)

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