24. At a given price, taking accelerated
depreciation
compared
to
straight-line
depreciation causes the NPV to be higher;
similarly, at a given price, lower net working
capital investment requirements will cause
the NPV to be higher. Thus, NPV would be
ze
The $5 million acquisition cost of the land six
years ago is a sunk cost. The $5.4 million
current aftertax value of the land is an
opportunity cost if the land is used rather
than sold off. The $10.4 million cash outlay
and $650,000 grading expenses are
To find the bid price, we need to calculate all
other cash flows for the project, and then
solve for the bid price. The aftertax salvage
value of the equipment is:
After-tax salvage value = $600,000(1
0.34)
After-tax salvage value = $396,000
Now we can s
To find the initial pretax cost savings
necessary to buy the new machine, we
should use the tax shield approach to find the
OCF. We begin by calculating the depreciation
each year using the MACRS depreciation
schedule. The depreciation each year is:
D1
D2
First we will calculate the annual depreciation
of the new equipment. It will be:
Annual depreciation charge = $925,000/5
Annual depreciation charge = $185,000
The aftertax
equipment is:
salvage
value
of
the
Aftertax salvage value = $90,000(1 0.35)
Aftert
e OCF and NPV of each option. The OCF and
NPV for Techron I is:
OCF
=
$34,000(1
0.35($210,000/3) = $2,400
0.35)
+
NPV = $210,000 + $2,400(PVIFA14%,3) +
($13,000/1.143) = $195,653.45
EAC = $195,653.45 / (PVIFA14%,3) =
$84,274.10
And the OCF and NPV for Te
6. The MACRS depreciation schedule is shown
in Table 10.7. The ending book value for any
year is the beginning book value minus the
depreciation for the year. Remember, to find
the amount of depreciation for any year, you
multiply the purchase price of th
CHAPTER10B163
We need to find the bid price for a project, but the
project has extra cash flows. Since we dont
already produce the keyboard, the sales of the
keyboard outside the contract are relevant cash
flows. Since we know the extra sales number and
p
The $5 million acquisition cost of the land six
years ago is a sunk cost. The $4.2 million
current appraisal of the land is an opportunity
cost if the land is used rather than sold off.
The $7.3 million cash outlay and $325,000
grading expenses are the in
NAME
Address | Phone | Email
OBJECTIVE
To get started right away, just tap any placeholder text (such as this) and start typing.
EXPERIENCE
Name of Employer
Job Title | Dates of Employment
This is the place for a brief summary of your key responsibilitie
b. To find the minimum number of cartons sold to still breakeven, we need
to use the tax shield approach to calculating OCF, and solve the
problem similar to finding a bid price. Using the initial cash flow and
salvage value we already calculated, the equ
13. First we will calculate the annual depreciation of the new equipment. It
will be:
Annual depreciation = $390,000/5
Annual depreciation = $78,000
Now, we calculate the aftertax salvage value. The aftertax salvage
value is the market price minus (or plu
23. At a given price, taking accelerated depreciation compared to straightline depreciation causes the NPV to be higher; similarly, at a given
price, lower net working capital investment requirements will cause
the NPV to be higher. Thus, NPV would be zer
26.
To find the initial pretax cost savings necessary to buy
the new machine, we should use the tax shield approach to find the
OCF. We begin by calculating the depreciation each year using the
MACRS depreciation schedule. The depreciation each year is:
D
7. The asset has an 8 year useful life and we want to find the BV of the
asset after 5 years. With straight-line depreciation, the depreciation
each year will be:
Annual depreciation = $440,000 / 8
Annual depreciation = $55,000
So, after five years, the a
15. To evaluate the project with a $400,000 cost savings, we need the OCF
to compute the NPV. Using the tax shield approach, the OCF is:
OCF = $400,000(1 0.35) + 0.35($185,000) = $324,750
NPV = $925,000 + 125,000 + $324,750(PVIFA20%,5) + [($58,500
125,00
18. To find the bid price, we need to calculate all other cash flows for the
project, and then solve for the bid price. The aftertax salvage value of
the equipment is:
Aftertax salvage value = $50,000(1 0.35) = $32,500
Now we can solve for the necessary O
20. If we are trying to decide between two projects that will not be
replaced when they wear out, the proper capital budgeting method to
use is NPV. Both projects only have costs associated with them, not
sales, so we will use these to calculate the NPV o
11. The cash outflow at the beginning of the project will increase because
of the spending on NWC. At the end of the project, the company will
recover the NWC, so it will be a cash inflow. The sale of the equipment
will result in a cash inflow, but we als
MULTIPLE CHOICE
21. A report that measures financial and nonfinancial performance measures for
various organization units in a single report is called a(n)
a.
balanced scorecard.
b. financial report scorecard.
c.
imbalanced scorecard.
d. unbalanced scorec
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 57 THROUGH 59.
Ruth Cleaning Products manufactures home cleaning products. The company has two
divisions, Bleach and Cleanser. Because of different accounting methods and inflation
rates, the company is consi
CHAPTER 23: PERFORMANCE MEASUREMENT, COMPENSATION, AND
MULTINATIONAL CONSIDERATIONS
TRUE/FALSE
1.
Many common performance measures, such as customer satisfaction, rely on
internal financial accounting information.
Answer: False
Difficulty: 1
Objective: 1
EXERCISES AND PROBLEMS
71. Assume you are evaluating a manufacturing company. Match the various
organizational activities and concepts with the performance measures listed.
Some items may have more than one match.
Activities:
1. Change in revenues
2. Cycl
CHAPTER 12 REVIEW QUESTIONS
TRUE/FALSE
1. Cost center managers exercise control over revenues, but not costs and
investments.
2. A profit center manager's goal is to not only maximize revenues, but minimize
costs.
3. The two key principles of performance
77. Batman Abstract Company has three divisions that operate autonomously.
Their results for 20x3 are as follows:
Sales
Contribution margin
Operating income
Investment base
Riddler
$5,000,000
1,440,000
1,000,000
9,000,000
Joker
$7,000,000
1,700,000
1,750,
Which of the following statements about banks' current accounts is incorrect?
.
Current accounts today generally pay interest.
.
Current accounts are a relatively stable source of bank funds.
Deregulation had a major impact on current accounts.
Current ac