JJ09 - Present Value Flow Factor Total $80,000.7118 $56,944...

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Chapter 9 Capital Budgeting and Other Long-Run Decisions E10. LO 3 a. Initial outlay $79,137 Annuity amount 22,500 Outlay ÷ annuity amount = PV of annuity factor 3.5172 Internal rate of return 13% b. Tanya should make the investment because its return of 13% is greater than the required return of 12%. E11. LO 4 Annual depreciation $50,000 ÷ 5 years $10,000.00 Annual tax savings $10,000 × .40 $4,000.00 Present value of $4,000 per year for 5 years at 12% $4,000 × 3.6048 $14,419.20
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Jiambalvo Managerial Accounting E12. LO 4 Year Income (Loss) 1 ($200,000) 2 (75,000) 3 250,000 4 400,000 The $200,000 loss in year 1 will offset income in year 3 resulting in a tax savings of $80,000 (i.e., $200,000 × 40% tax rate) in year 3. With respect to the $75,000 loss in year 2, $50,000 of it can be used to offset income in year 3 (resulting in a tax savings of $20,000 in year 3) and $25,000 of it can be used to offset income in year 4 (resulting in a tax savings of $10,000 in year 4). Cash
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Unformatted text preview: Present Value Flow Factor Total $80,000 .7118 $56,944 20,000 .7118 14,236 10,000 .6355 6,355 $77,535 E13. LO 2, 4 The annual cash inflow is $9,514, calculated as follows: Revenue $24,000 Less: Cost other than depreciation 11,000 Depreciation 4,286 Income before taxes 8,714 Less taxes at 40% 3,486 Net income 5,228 Plus depreciation 4,286 Cash flow $9,514 The net present value is positive, so the smoker should be purchased. Cash Present Value Flow Factor Total $9,514 4.2883 $40,798.89 (30,000) 1.0000 (30,000 .00 ) $ 10,798 .89 9-2 Chapter 9 Capital Budgeting Decisions E14. LO 6 The payback period is 5.5 years as follows: Cost $55,000 Cash inflows 10,000 Cost cash inflows = Payback period 5.5 years E15. LO 6 The accounting rate of return is 37.50%: Average income $75,000 Average investment ($400,000 ÷ 2) 200,000 Average income ÷ Average investment = Accounting rate of return 37.50% 9-3...
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