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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.)

eBook LinkView Hint #1

Worksheet

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.)

eBook LinkView Hint #1

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.)

eBook LinkView Hint #1

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.)

eBook LinkView Hint #1

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.

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