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Ch 07 Solutions 3 - 7 Making Decisions Using Relevant...

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7 Making Decisions Using Relevant Information SOLUTIONS TO APPLY WHAT YOU HAVE LEARNED 7-12. 1. I The cost of the old equipment 2. R The cost of the new equipment 3. I Depreciation of the old equipment 4. I Depreciation of the new equipment 5. R Trade-in value of the old equipment 6. R Residual value of the old equipment 7. R Residual value of the new equipment 7-13. a. Schedule of Portable Computer Costs Computer Software Power Supply Internet Service Carrying Case b. Company’s quantitative benefits of Tom purchasing the portable computer: Reduced long distance phone calls Tom’s efficiency with paper work Increased revenue from Tom’s efficiency on the road Reduced overtime pay for Tom Reduced computer operating costs and Internet fees c. Tom’s quantitative benefits of his purchasing the portable computer: Increased efficiency may improve income by increasing sales Increased efficiency may improve chances of promotion Chapter 7 – Making Decisions Using Relevant Information 185
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7-13. (Continued) d. Company’s qualitative benefits of Tom’s purchasing the portable computer: Increased customer satisfaction More efficient operations Increased satisfaction with Tom’s performance e. Tom's qualitative benefits of his purchasing the portable computer: Increased job satisfaction and morale Increased leisure time when he does not have to work at home f. Student answers will vary. Perhaps Tom should pay to the extent that the computer will be used for personal work and enjoyment. The employer should pay to the extent that the computer will be used for company work. For example, if the expected use is 40% for company work and 60% personal, the cost could be shared accordingly. 7-14. a. Relevant quantitative factors: Price of the new car The fair value of the old car The trade-in allowed on the old car Maintenance costs for the old car and the new car Anticipated repair costs on old car Gasoline costs for both cars Insurance and license costs for both cars Other operating costs for both cars 186 Chapter 7 – Making Decisions Using Relevant Information
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7.14. (Continued) b. Relevant qualitative factors: Worry about the old car operating reliably Uncertainty about the amount and timing of the maintenance costs on the old car Inconvenience of having the car unavailable during repairs Pride and prestige of having a new car Peace of mind regarding reliable transportation Worry about making the new car payments Satisfaction and peace of mind with having a car paid for The "new car smell" c. Students should weigh the relevant costs of buying a new car and keeping an old car. The answer depends upon the costs of each. d. Student answers will vary. Tina should buy the new car if she believes the relevant quantitative and qualitative factors in favor of the new car outweigh the relevant quantitative and qualitative factors in favor of keeping the old car.
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