Summary ACCT 212 Chapter 11 Homework Liberty University answers complete solutions (latest 2022/2023) 1. Beyer Company is considering the purchase of an asset for $180,000. It is expected to produce the following net cash flows. The cash flows occur evenly throu

ACCT 212 Chapter 11 Homework Liberty University answers complete solutions (latest 2022/2023) 1. Beyer Company is considering the purchase of an asset for $180,000. 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 $ 60,000 $ 40,000 $ 70,000 $ 125,000 $ 35,000 $ 330,000 ________________________________________ Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your Payback Period answer to 2 decimal places.) Year Cash Inflow (Outflow) Cumulative Net Cash Inflow (Outflow) 0 $(180,000) $(180,000) 1 60,000 (120,000) 2 40,000 (80,000) 3 70,000 (10,000) 4 125,000 115,000 5 35,000 150,000 $150,000 Payback period = 3.08 years 2. Compute the payback period for each of these two separate investments: a. A new operating system for an existing machine is expected to cost $520,000 and have a useful life of six years. The system yields an incremental after-tax income of $150,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000. b. A machine costs $380,000, has a $20,000 salvage value, is expected to last eight years, and will generate an after-tax income of $60,000 per year after straight-line depreciation. Payback Period Choose Numerator: / Choose Denominator: = Payback Period Cost of investment / Annual net cash flow = Payback period a. $520,000 / $235,000 = 2.21 years b. $380,000 / $105,000 = 3.62 years 3. A machine costs $700,000 and is expected to yield an after-tax net income of $52,000 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 machine’s accounting rate of return. Accounting Rate of Return Choose Numerator: / Choose Denominator: = Accounting Rate of Return Annual after-tax net income / Annual average investment = Accounting rate of return $52,000 / $400,000 = 13.00 % 4. B2B 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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. Sales $ 225,000 Costs Materials, labor, and overhead (except depreciation on new equipment) 120,000 Depreciation on new equipment 30,000 Selling and administrative expenses 22,500 ________________________________________ ________________________________________ Total costs and expenses 172,500 ________________________________________ ________________________________________ Pretax income 52,500 Income taxes (30%) 15,750 ________________________________________ ________________________________________ Net income $ 36,750 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ 1. Compute the payback period. Payback Period Choose Numerator: / Choose Denominator: = Payback Period Cost of investment / Annual net cash flow = Payback period $360,000 / $66,750 = 5.39 years 2. Compute the accounting rate of return for this equipment. Accounting Rate of Return Choose Numerator: / Choose Denominator: = Accounting Rate of Return Annual after-tax net income / Annual average investment = Accounting rate of return $36,750 / $180,000 = 20.42 % 5. B2B 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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. If at least an 8% return on this investment must be earned, compute the net present value. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Sales $ 225,000 Costs Materials, labor, and overhead (except depreciation) 120,000 Depreciation on new equipment 30,000 Selling and administrative expenses 22,500 ________________________________________ ________________________________________ Total costs and expenses 172,500 ________________________________________ ________________________________________ Pretax income 52,500 Income taxes (30%) 15,750 ________________________________________ ________________________________________ Net income $ 36,750 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Compute the net present value of this investment. Chart Values are Based on: n = 12 i = 8% Select Chart Amount x PV Factor = Present Value Present Value of an Annuity of 1 $66,750 x 7.5361 = $503,035 Present value of cash inflows $503,035 Present value of cash outflows (360,000) Net present value $143,035 ----------------------------------------------------------------------------------------------------------------------------------- 6. Phoenix Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $228,000 and would yield the following annual cash flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) C1 C2 C3 Year 1 $ 12,000 $ 96,000 $ 180,000 Year 2 108,000 96,000 60,000 Year 3 168,000 96,000 48,000 ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ Totals $ 288,000 $ 288,000 $ 288,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ (1) Assuming that the company requires a 12% return from its investments, use net present value to determine which projects, if any, should be acquired. (Round your answers to the nearest whole dollar. Negative amounts should be indicated by a minus sign.) Project C1 Initial Investment $228,000 Chart Values are Based on: i = 12% Year Cash Inflow x PV Factor = Present Value 1 12,000 x 0.8929 = 10,715 2 108,000 x 0.7972 = 86,098 3 168,000 x 0.7118 = 119,582 $216,395 Present value of cash inflows $216,395 Present value of cash outflows 228,000 Net present value $(11,605) Should the company acquire this investment? No Project C2 Initial Investment $228,000 Year Cash Inflow x PV Factor = Present Value 1 96,000 x 0.8929 = 85,718 2 96,000 x 0.7972 = 76,531 3 96,000 x 0.7118 = 68,333 $230,582 Present value of cash inflows $230,582 Present value of cash outflows 228,000 Net present value $2,582 Should the company acquire this investment? Yes Project C3 Initial Investment $228,000 Year Cash Inflow x PV Factor = Present Value 1 180,000 x 0.8929 = 160,722 2 60,000 x 0.7972 = 47,832 3 48,000 x 0.7118 = 34,166 $242,720 Present value of cash inflows $242,720 Present value of cash outflows 228,000 Net present value $14,720 Should the company acquire this investment? Yes [The following information applies to the questions displayed below.] Manning Corporation is considering a new project requiring a $90,000 investment in test equipment with no salvage value. The project would produce $66,000 of pretax income before depreciation at the end of each of the next six years. The company’s income tax rate is 40%. In compiling its tax return and computing its income tax payments, the company can choose between the two alternative depreciation schedules shown in the table. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use MACRS) (Use appropriate factor(s) from the tables provided.) Straight-Line Depreciation MACRS Depreciation Year 1 $ 9,000 $ 18,000 Year 2 18,000 28,800 Year 3 18,000 17,280 Year 4 18,000 10,368 Year 5 18,000 10,368 Year 6 9,000 5,184 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Totals $ 90,000 $ 90,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ 7. Required: 1. Complete the following table assuming use of straight-line depreciation. Net cash flow equals the amount of income before depreciation minus the income taxes. Income Before Depreciation Straight-Line Depreciation Taxable Income Income Taxes Net Cash Flows Year 1 $66,000 $9,000 $57,000 $22,800 $43,200 Year 2 66,000 18,000 48,000 19,200 46,800 Year 3 66,000 18,000 48,000 19,200 46,800 Year 4 66,000 18,000 48,000 19,200 46,800 Year 5 66,000 18,000 48,000 19,200 46,800 Year 6 66,000 9,000 57,000 22,800 43,200 8. 2. Complete the following table assuming use of MACRS depreciation. Net cash flow equals the amount of income before depreciation minus the income taxes. Income Before Depreciation MACRS Depreciation Taxable Income Income Taxes Net Cash Flows Year 1 $66,000 $18,000 $48,000 $19,200 $46,800 Year 2 66,000 28,800 37,200 14,880 51,120 Year 3 66,000 17,280 48,720 19,488 46,512 Year 4 66,000 10,368 55,632 22,253 43,747 Year 5 66,000 10,368 55,632 22,253 43,747 Year 6 66,000 5,184 60,816 24,326 41,674 9. 3. Compute the net present value of the investment if straight-line depreciation is used. Use 10% as the discount rate. Chart Values are Based on: i = 10% Year Net Cash Inflow x PV Factor = Present Value 1 43,200 x 0.9091 = 39,273 2 46,800 x 0.8264 = 38,676 3 46,800 x 0.7513 = 35,161 4 46,800 x 0.6830 = 31,964 5 46,800 x 0.6209 = 29,058 6 43,200 x 0.5645 = 24,386 Present value of cash inflows $198,518 Present value of cash outflows (90,000) Net present value $108,518 10. 4. Compute the net present value of the investment if MACRS depreciation is used. Use 10% as the discount rate. Chart Values are Based on: i = 10% Year Net cash Inflow x PV Factor = Present Value 1 46,800 x 0.9091 = 42,546 2 51,120 x 0.8264 = 42,246 3 46,512 x 0.7513 = 34,944 4 43,747 x 0.6830 = 29,879 5 43,747 x 0.6209 = 27,163 6 41,674 x 0.5645 = 23,525 Present value of cash inflows $200,303 Present value of cash outflows (90,000) Net present value $110,303 11. Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $250,000 and will yield the following expected cash flows. Management requires investments to have a payback period of three years, and it requires a 10% return on investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Period Cash Flow 1 $ 47,000 2 52,000 3 75,000 4 94,000 5 125,000 ________________________________________ Required: 1. Determine the payback period for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.) Year Cash inflow (outflow) Cumulative Net Cash Inflow (outflow) 0 $(250,000) $(250,000) 1 47,000 (203,000) 2 52,000 (151,000) 3 75,000 (76,000) 4 94,000 18,000 5 125,000 143,000 $143,000 Calculate the payback period: Payback occurs between year: 3 and year: 4 Calculate the portion of the year: Numerator for partial year $76,000 0.8 years Denominator for partial year $94,000 Payback period = 3.8 years 2. Determine the break-even time for this investment.(Enter cash outflows with a minus sign. Round your break-even time answer to 1 decimal place.) Year Cash inflow (outflow) Table factor Present Value of Cash Flows Cumulative Present Value of Cash Flows 0 $(250,000) 1.0000 $(250,000) $(250,000) 1 47,000 0.9091 $42,728 (207,272) 2 52,000 0.8264 $42,973 (164,299) 3 75,000 0.7513 $56,348 (107,951) 4 94,000 0.6830 $64,202 (43,749) 5 125,000 0.6209 $77,613 33,864 $143,000 Calculate the break even time: Break-even time occurs between year: 4 and year: 5 Calculate the portion of the year: Numerator for partial year $43,749 0.6 years Denominator for partial year $77,613 Break-even time = 4.6 years 3. Determine the net present value for this investment. Net present value $33,864