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 machine’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 machine’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 equipment’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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