MAS PROBLEMS 2018.doc

# Grover corporation needs 50000 units of this keypad

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Grover Corporation needs 50,000 units of this keypad annually. A supplier, Keypad Corp., has offered to sell to Grover Corp. its keypad requirements at P24 per unit. If Grover decides to buy the keypads, P2 per unit of the fixed overhead based on the annual estimate could be eliminated, and the facility previously used to produce the keypad could be rented to another company. 45. If Grover Corp. outsources the keypads but does not rent the unused facility, it would A. save P4 per unit B. save P2 per unit C. lose P4 per unit

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MANAGEMENT ADVISORY SERVICES Page 15 D. lose P7 per unit 46. If the keypads were purchased and the facility rented, how much must the annual rent on the facility be if Grover Corporation wishes to realize annual savings of P80,000? A. 270,000 B. 430,000 C. 280,000 D. 380,000 Numbers 47 and 48 (CAPITAL BUDGETING) Ricky Ironworks is considering a proposal to sell an existing lathe and purchase a new computer-operated lathe. Information on the existing lathe and the computer- operated lathe follow: Existing Lathe Computer- operated Lathe Cost P100,000 P300,000 Accumulated depreciation 60,000 0 Salvage value now 20,000 Salvage value in 4 years 0 60,000 Annual depreciation 10,000 75,000 Annual cash operating costs 200,000 50,000 Remaining useful life 4 years 4 years 47. What is the payback period for the computer-operated lathe? A. 1.87 years B. 2.00 years C. 3.53 years D. 3.29 years 48. If the company uses 10 percent as its discount rate, what is the net present value of the proposed new lathe purchase? (Round present value factors to four decimal places) A. 236,465 B. 256,465 C. 195,485 D. 30,422 Number 49 (CAPITAL BUDGETING) RPI Corporation bought a piece of machinery. Selected data is presented below: Useful life 6 years Yearly net cash inflow P45,000 Salvage value - 0 - Internal rate of return 18% Cost of capital 14% The initial cost of the machinery was (round present value factor to four decimal places) A. 157,392 B. 174,992 C. 165,812
MANAGEMENT ADVISORY SERVICES Page 16 D. impossible to determine from the information given Number 50 (CAPITAL BUDGETING) Tanya Corporation issued preferred stocks for P120 per share. The issue price is P20 more than the stock’s par value. The company incurred underwriting fees of P10 per share. The stocks will earn annual dividends of P12 per share. If the tax rate is 30%, the cost of capital (preferred stocks) is A. 10% B. 12% C. 7.42% D. 10.91% Number 51 (CAPITAL BUDGETING) At the beginning of the year, Djorn Corporation purchased a new equipment for P360,000. The machine has an estimated useful life of four (4) years with no salvage value. It is expected to produce cash flows from operations, net of income taxes of 32%, as follows: Year 1 P128,000 2 112,000 3 144,000 4 96,000 5 80,000 Djorn Corporation uses the sum-of-the-years-digits method (SYD) in computing depreciation of its depreciable assets. Using SYD, the new equipment will be depreciated as follows: Year 1 (P360,000 x 4/10) P144,000 2 (P360,000 x 3/10) 108,000 3 (P360,000 x 2/10) 72,000 4 (P360,000 x 1/10) 36,000 The company’s cost of capital is 10%. The present value factors at 10% are as follows: End of Year 1 0.909 2 0.826 3 0.751 4 0 .683 Total, 4 years 3 .170 If Djorn Corporation used the straight-line method of depreciation instead of the

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• Summer '18
• Jane
• Integers, Chem, Jane Corporation

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