acct 212 home work 8 chapter 25acct 212 home work 8 chapter 251.

award:

3 out of

3.00 points

Exercise 25-1 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 $300,000 and

have a useful life of four years. The system yields an incremental after-tax

income of $86,538 each year after deducting its straight-line depreciation.

The predicted salvage value of the system is $12,000. (Round your intermediate calculations to the nearest dollar

amount and final answer to 2 decimal places.)

b.

A

machine costs $180,000, has a $16,000 salvage value, is expected to last nine

years, and will generate an after-tax income of $47,000 per year after

straight-line depreciation. (Round your

intermediate calculations to the nearest dollar amount and final answer

to 2 decimal places.)

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Difficulty: Medium

Exercise 25-1 Payback period computation; even cash flows L.O. P1

2.

award:

2 out of

2.00 points

Exercise 25-2 Payback period computation; uneven cash flows L.O. P1

Wenro

Company is considering the purchase of an asset for $70,000. 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

$

20,000

$

10,000

$

20,000

$

30,000

$

9,000

$

89,000

Compute

the payback period for this investment. (Round

your intermediate calculations to 3 decimal places and final answer to 1

decimal place.)

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Worksheet

Difficulty: Medium

Exercise 25-2 Payback period computation; uneven cash flows

3.

award:

2 out of

2.00 points

Exercise 25-3 Payback period computation; declining-balance depreciation

L.O. P1

A

machine can be purchased for $320,000 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 $60,000 salvage value.

Year 1

Year 2

Year 3

Year 4

Year 5

Net

incomes

$

22,000

$

52,000

$

102,000

$

77,000

$

202,000

Compute

the machine’s payback period (ignore taxes). (Round

your intermediate calculations to 3 decimal places and final answer to 2

decimal places.)

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Worksheet

Difficulty: Medium

Exercise 25-3 Payback period computation; declining-balance

depreciation L.O. P1

Learning Objective: 25-P1 Compute payback period and describe its use.

4.

award:

2 out of

2.00 points

Exercise 25-4 Accounting rate of return L.O. P2

A

machine costs $500,000 and is expected to yield an after-tax net income of

$19,000 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 machines accounting rate of return. (Round

your answer to the nearest whole number. Omit the “%” sign in your

response.)

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Worksheet

Difficulty: Medium

Exercise 25-4 Accounting rate of return L.O. P2

Learning Objective: 25-P2 Compute accounting rate of return and

explain its use.

5.

award:

3 out of

3.00 points

Exercise 25-5 Payback period and accounting rate of return on investment

L.O. P1, P2

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 $160,000 with a

12-year life and no salvage value. It will be depreciated on a straight-line

basis. The company expects to sell 64,000 units of the equipments product

each year. The expected annual income related to this equipment follows.

Sales

$

100,000

Costs

Materials,

labor, and overhead (except depreciation)

53,000

Depreciation

on new equipment

13,333

Selling

and administrative expenses

10,000

Total

costs and expenses

76,333

Pretax

income

23,667

Income

taxes (50%)

11,834

Net

income

$

11,833

1.

Compute

the payback period. (Round your answer to 2

decimal places.)

2.

Compute

the accounting rate of return for this equipment. (Round your answer to 2 decimal places. Omit the

“%” sign in your response.)

eBook Links (2)View Hint #1

Worksheet

Difficulty: Medium

Learning Objective: 25-P2 Compute accounting rate of return and

explain its use.

Exercise 25-5 Payback period and accounting rate of return on

investment L.O. P1, P2

Learning Objective: 25-P1 Compute payback period and describe its use.

.

award:

3 out of

3.00 points

Exercise 25-6 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 $384,000 with a

4-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 9% return on this

investment. The company expects to sell 153,600 units of the equipments

product each year. The expected annual income related to this equipment

follows. (Use .mhhe.com/connect/0078110874/Images/tableb.3.jpg”>Table B.3)

Sales

$

240,000

Costs

Materials,

labor, and overhead (except depreciation)

84,000

Depreciation

on new equipment

96,000

Selling

and administrative expenses

24,000

Total

costs and expenses

204,000

Pretax

income

36,000

Income

taxes (30%)

10,800

Net

income

$

25,200

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.)

rev: 08_13_2011

eBook LinkView Hint #1

Worksheet

Difficulty: Medium

Exercise 25-6 Computing net present value L.O. P3|

Learning Objective: 25-P3 Compute net present value and describe its

use.

7.

award:

2.40 out of

4.00 points

Exercise 25-8 NPV and profitability index L.O. P3

Following

is information on two alternative investments being considered by Jin

Company. The company requires a 8% return from its investments. (Use .mhhe.com/connect/0078110874/Images/tableb.1.jpg”>Table B.1)

Project A

Project B

Initial

investment

$

(177,325

)

$

(141,960

)

Expected

net cash flows in year:

1

49,000

28,000

2

41,000

48,000

3

82,295

67,000

4

81,400

77,000

5

61,000

31,000

1(a)

For

each alternative project compute the net present value. (Round “PV Factor” to 4 decimal places. Round

your intermediate and final answers to the nearest dollar amount. Omit the

“$” sign in your response.)

1(b)

For

each alternative project compute the profitability index. (Round “PV Factor” to 4 decimal places. Round

your intermediate and final answers to the nearest dollar amount.)

2

Assume

If the company can only select one project, which should it choose?

rev: 08_13_2011

eBook LinkView Hint #1

Worksheet

Difficulty: Medium

Exercise 25-8 NPV and profitability index L.O. P3

Learning Objective: 25-P3 Compute net present value and describe its

use.

8.

award:

1 out of

3.00 points

Exercise 25-11 Scrap or rework L.O. A1

A

company must decide between scrapping or reworking units that do not pass

inspection. The company has 17,000 defective units that cost $5.30 per unit

to manufacture. The units can be sold as is for $2.50 each, or they can be

reworked for $3.50 each and then sold for the full price of $9.90 each. If

the units are sold as is, the company will also be able to build 17,000

replacement units at a cost of $5.30 each, and sell them at the full price of

$9.90 each.

(1)

What is

the incremental income from selling the units as scrap? (Omit the “$” sign in your response.)

(2)

What is

the incremental income from reworking and selling the units? (Omit the “$” sign in your response.)

(3)

What

must the company decide?

rev: 05_02_2012

eBook Link

Worksheet

Difficulty: Medium

Exercise 25-11 Scrap or rework L.O. A1

Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

9.

award:

4 out of

4.00 points

Exercise 25-12 Keep or replace L.O. A1

Xu

Company is considering replacing one of its manufacturing machines. The

machine has a book value of $38,000 and a remaining useful life of 5 years,

at which time its salvage value will be zero. It has a current market value

of $48,000. Variable manufacturing costs are $33,100 per year for this

machine. Information on two alternative replacement machines follows.

Alternative A

Alternative B

Cost

$

124,000

$

112,000

Variable

manufacturing costs per year

22,900

11,000

Calculate

the total change in net income if Alternative A is adopted. (Input all amounts as positive values, except cash outflows

and any negative total change in net income which should be indicated by a

minus sign. Omit the “$” sign in your response.)

Calculate

the total change in net income if Alternative B is adopted. (Input all amounts as positive values, except cash

outflows and any negative total change in net income which should be

indicated by a minus sign. Omit the “$” sign in your response.)

Should

Xu keep or replace its manufacturing machine? If the machine should be replaced,

which alternative new machine should Xu purchase?

eBook Link

Worksheet

Exercise 25-12 Keep or replace L.O. A1

Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

10.

award:

4 out of

4.00 points

Exercise 25-13 Decision to accept additional business or not L.O. A1

Feist

Co. expects to sell 500,000 units of its product in the next period with the

following results.

Sales

(500,000 units)

$

7,500,000

Costs

and expenses

Direct

materials

1,000,000

Direct

labor

2,000,000

Overhead

500,000

Selling

expenses

750,000

Administrative

expenses

1,285,000

Total

costs and expenses

5,535,000

Net

income

$

1,965,000

The

company has an opportunity to sell 50,000 additional units at $12 per unit.

The additional sales would not affect its current expected sales. Direct

materials and labor costs per unit would be the same for the additional units

as they are for the regular units. However, the additional volume would

create the following incremental costs: (1) total overhead would increase by

16% and (2) administrative expenses would increase by $215,000.

Calculate

the combined total net income if the company accepts the offer to sell

additional units at the reduced price of $12 per unit. (Leave no cells blank – be certain to enter “0”

wherever required. Input all amounts as positive values. Omit the

“$” sign in your response.)

Should

the company accept or reject the offer?

eBook LinkView Hint #1

Worksheet

Difficulty: Medium

Exercise 25-13 Decision to accept additional business or not L.O. A1

Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

11.

award:

4 out of

4.00 points

Exercise 25-14 Make or buy decision L.O. A1

Santos

Company currently manufactures one of its crucial parts at a cost of $5.40

per unit. This cost is based on a normal production rate of 50,000 units per

year. Variable costs are $3.50 per unit, fixed costs related to making this

part are $50,000 per year, and allocated fixed costs are $45,000 per year.

Allocated fixed costs are unavoidable whether the company makes or buys the

part. Santos is considering buying the part from a supplier for a quoted

price of $3.10 per unit guaranteed for a three-year period.

Calculate

the total incremental cost of making 50,000 units. (Omit the “$” sign in your response.)

Calculate

the total incremental cost of buying 50,000 units. (Omit the “$” sign in your response.)

Should

the company continue to manufacture the part, or should it buy the part from

the outside supplier?

eBook LinkView Hint #1

Worksheet

Difficulty: Medium

Exercise 25-14 Make or buy decision L.O. A1

Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

12.

award:

3 out of

3.00 points

Exercise 25-15 Sell or process decision L.O. A1

Cantrell

Company has already manufactured 23,000 units of Product A at a cost of $25

per unit. The 23,000 units can be sold at this stage for $520,000.

Alternatively, the units can be further processed at a $400,000 total

additional cost and be converted into 4,100 units of Product B and 7,500

units of Product C. Per unit selling price for Product B is $76 and for

Product C is $52.

1.

Calculate

the Incremental Net Income (or loss) if processed further. (Negative amount should be indicated by a minus sign. Omit

the “$” sign in your response.)

2.

Indicate

whether the 23,000 units of Product A should be processed further or not.

eBook LinkView Hint #1

Worksheet

Difficulty: Medium

Exercise 25-15 Sell or process decision L.O. A1

Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

1.award:

3 out of

3.00 points Exercise 25-1 Payback period computation; even cash flows L.O. P1Compute

the payback period for each of these two separate investments:a.A new

operating system for an existing machine is expected to cost $300,000 and

have a useful life of four years. The system yields an incremental after-tax

income of $86,538 each year after deducting its straight-line depreciation.

The predicted salvage value of the system is $12,000. (Round your intermediate calculations to the nearest dollar

amount and final answer to 2 decimal places.)b.A

machine costs $180,000, has a $16,000 salvage value, is expected to last nine

years, and will generate an after-tax income of $47,000 per year after

straight-line depreciation. (Round your

intermediate calculations to the nearest dollar amount and final answer

to 2 decimal places.)

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-1 Payback period computation; even cash flows L.O. P12.award:

2 out of

2.00 points Exercise 25-2 Payback period computation; uneven cash flows L.O. P1Wenro

Company is considering the purchase of an asset for $70,000. It is expected

to produce the following net cash flows. The cash flows occur evenly

throughout each year. Year 1Year 2Year 3Year 4Year 5Total Net

cash flows $20,000 $10,000 $20,000 $30,000 $9,000 $89,000 Compute

the payback period for this investment. (Round

your intermediate calculations to 3 decimal places and final answer to 1

decimal place.)

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-2 Payback period computation; uneven cash flows3.award:

2 out of

2.00 points Exercise 25-3 Payback period computation; declining-balance depreciation

L.O. P1A

machine can be purchased for $320,000 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 $60,000 salvage value. Year 1Year 2Year 3Year 4Year 5 Net

incomes $22,000 $52,000 $102,000 $77,000 $202,000 Compute

the machine’s payback period (ignore taxes). (Round

your intermediate calculations to 3 decimal places and final answer to 2

decimal places.)

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-3 Payback period computation; declining-balance

depreciation L.O. P1Learning Objective: 25-P1 Compute payback period and describe its use.

4.award:

2 out of

2.00 points Exercise 25-4 Accounting rate of return L.O. P2A

machine costs $500,000 and is expected to yield an after-tax net income of

$19,000 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 machines accounting rate of return. (Round

your answer to the nearest whole number. Omit the “%” sign in your

response.)

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-4 Accounting rate of return L.O. P2Learning Objective: 25-P2 Compute accounting rate of return and

explain its use.

5.award:

3 out of

3.00 points Exercise 25-5 Payback period and accounting rate of return on investment

L.O. P1, P2K2B 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 $160,000 with a

12-year life and no salvage value. It will be depreciated on a straight-line

basis. The company expects to sell 64,000 units of the equipments product

each year. The expected annual income related to this equipment follows. Sales$100,000 Costs Materials,

labor, and overhead (except depreciation) 53,000 Depreciation

on new equipment 13,333 Selling

and administrative expenses 10,000 Total

costs and expenses 76,333 Pretax

income 23,667 Income

taxes (50%) 11,834 Net

income$11,833 1.Compute

the payback period. (Round your answer to 2

decimal places.)2.Compute

the accounting rate of return for this equipment. (Round your answer to 2 decimal places. Omit the

“%” sign in your response.)

eBook Links (2)View Hint #1WorksheetDifficulty: MediumLearning Objective: 25-P2 Compute accounting rate of return and

explain its use.Exercise 25-5 Payback period and accounting rate of return on

investment L.O. P1, P2Learning Objective: 25-P1 Compute payback period and describe its use.

.award:

3 out of

3.00 points Exercise 25-6 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 $384,000 with a

4-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 9% return on this

investment. The company expects to sell 153,600 units of the equipments

product each year. The expected annual income related to this equipment

follows. (Use .mhhe.com/connect/0078110874/Images/tableb.3.jpg”>Table B.3) Sales$240,000 Costs Materials,

labor, and overhead (except depreciation) 84,000 Depreciation

on new equipment 96,000 Selling

and administrative expenses 24,000 Total

costs and expenses 204,000 Pretax

income 36,000 Income

taxes (30%) 10,800 Net

income$25,200 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.)

rev: 08_13_2011

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-6 Computing net present value L.O. P3|Learning Objective: 25-P3 Compute net present value and describe its

use.

7.award:

2.40 out of

4.00 points Exercise 25-8 NPV and profitability index L.O. P3Following

is information on two alternative investments being considered by Jin

Company. The company requires a 8% return from its investments. (Use .mhhe.com/connect/0078110874/Images/tableb.1.jpg”>Table B.1) Project AProject B Initial

investment $(177,325) $(141,960) Expected

net cash flows in year: 1 49,000 28,000 2 41,000 48,000 3 82,295 67,000 4 81,400 77,000 5 61,000 31,000 1(a)For

each alternative project compute the net present value. (Round “PV Factor” to 4 decimal places. Round

your intermediate and final answers to the nearest dollar amount. Omit the

“$” sign in your response.) 1(b)For

each alternative project compute the profitability index. (Round “PV Factor” to 4 decimal places. Round

your intermediate and final answers to the nearest dollar amount.) 2Assume

If the company can only select one project, which should it choose?

rev: 08_13_2011

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-8 NPV and profitability index L.O. P3Learning Objective: 25-P3 Compute net present value and describe its

use.

8.award:

1 out of

3.00 points Exercise 25-11 Scrap or rework L.O. A1A

company must decide between scrapping or reworking units that do not pass

inspection. The company has 17,000 defective units that cost $5.30 per unit

to manufacture. The units can be sold as is for $2.50 each, or they can be

reworked for $3.50 each and then sold for the full price of $9.90 each. If

the units are sold as is, the company will also be able to build 17,000

replacement units at a cost of $5.30 each, and sell them at the full price of

$9.90 each. (1)What is

the incremental income from selling the units as scrap? (Omit the “$” sign in your response.) (2)What is

the incremental income from reworking and selling the units? (Omit the “$” sign in your response.) (3)What

must the company decide?

rev: 05_02_2012

eBook LinkWorksheetDifficulty: Medium Exercise 25-11 Scrap or rework L.O. A1Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

9.award:

4 out of

4.00 points Exercise 25-12 Keep or replace L.O. A1Xu

Company is considering replacing one of its manufacturing machines. The

machine has a book value of $38,000 and a remaining useful life of 5 years,

at which time its salvage value will be zero. It has a current market value

of $48,000. Variable manufacturing costs are $33,100 per year for this

machine. Information on two alternative replacement machines follows. Alternative AAlternative B Cost$124,000 $112,000 Variable

manufacturing costs per year 22,900 11,000 Calculate

the total change in net income if Alternative A is adopted. (Input all amounts as positive values, except cash outflows

and any negative total change in net income which should be indicated by a

minus sign. Omit the “$” sign in your response.) Calculate

the total change in net income if Alternative B is adopted. (Input all amounts as positive values, except cash

outflows and any negative total change in net income which should be

indicated by a minus sign. Omit the “$” sign in your response.) Should

Xu keep or replace its manufacturing machine? If the machine should be replaced,

which alternative new machine should Xu purchase?

eBook LinkWorksheetExercise 25-12 Keep or replace L.O. A1Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

10.award:

4 out of

4.00 points Exercise 25-13 Decision to accept additional business or not L.O. A1Feist

Co. expects to sell 500,000 units of its product in the next period with the

following results. Sales

(500,000 units) $7,500,000 Costs

and expenses Direct

materials 1,000,000 Direct

labor 2,000,000 Overhead 500,000 Selling

expenses 750,000 Administrative

expenses 1,285,000 Total

costs and expenses 5,535,000 Net

income $1,965,000 The

company has an opportunity to sell 50,000 additional units at $12 per unit.

The additional sales would not affect its current expected sales. Direct

materials and labor costs per unit would be the same for the additional units

as they are for the regular units. However, the additional volume would

create the following incremental costs: (1) total overhead would increase by

16% and (2) administrative expenses would increase by $215,000. Calculate

the combined total net income if the company accepts the offer to sell

additional units at the reduced price of $12 per unit. (Leave no cells blank – be certain to enter “0”

wherever required. Input all amounts as positive values. Omit the

“$” sign in your response.) Should

the company accept or reject the offer?

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-13 Decision to accept additional business or not L.O. A1Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

11.award:

4 out of

4.00 points Exercise 25-14 Make or buy decision L.O. A1Santos

Company currently manufactures one of its crucial parts at a cost of $5.40

per unit. This cost is based on a normal production rate of 50,000 units per

year. Variable costs are $3.50 per unit, fixed costs related to making this

part are $50,000 per year, and allocated fixed costs are $45,000 per year.

Allocated fixed costs are unavoidable whether the company makes or buys the

part. Santos is considering buying the part from a supplier for a quoted

price of $3.10 per unit guaranteed for a three-year period. Calculate

the total incremental cost of making 50,000 units. (Omit the “$” sign in your response.) Calculate

the total incremental cost of buying 50,000 units. (Omit the “$” sign in your response.) Should

the company continue to manufacture the part, or should it buy the part from

the outside supplier?

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-14 Make or buy decision L.O. A1Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.

12.award:

3 out of

3.00 points Exercise 25-15 Sell or process decision L.O. A1Cantrell

Company has already manufactured 23,000 units of Product A at a cost of $25

per unit. The 23,000 units can be sold at this stage for $520,000.

Alternatively, the units can be further processed at a $400,000 total

additional cost and be converted into 4,100 units of Product B and 7,500

units of Product C. Per unit selling price for Product B is $76 and for

Product C is $52. 1.Calculate

the Incremental Net Income (or loss) if processed further. (Negative amount should be indicated by a minus sign. Omit

the “$” sign in your response.)

2.Indicate

whether the 23,000 units of Product A should be processed further or not.

eBook LinkView Hint #1WorksheetDifficulty: Medium Exercise 25-15 Sell or process decision L.O. A1Learning Objective: 25-A1 Evaluate short-term managerial decisions

using relevant costs.