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managerial accounting 12th
Managerial Accounting The Cornerstone Of Business Decision Making 9th Edition Maryanne Mowen, Don Hansen, Dan Heitger - Solutions
Brief Exercise 12-30 Internal Rate of Return Richins Company produces automobile engine parts. The company is examining the possibility of investing in a new production system that will reduce the costs of the current system. The new system will require a cash investment of $11,551,968 and will
Brief Exercise 12-29 Net Present Value Tatsumi Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $4,050,000. Producing the printer requires an investment in new equipment costing $4,320,000. The printer has a projected life cycle of 5
Brief Exercise 12-28 Accounting Rate of Return Cannon Company invested $11,200,000 in a new product line. The life cycle of the product is projected to be 8 years with the following net income stream: $280,000, $280,000, $420,000,$980,000, $1,120,000, $1,540,000, $2,800,000, and
Lee Advertising, Inc. is considering an investment in a new information system. The new system requires an investment of $2,520,000 and either has (a) even cash flows of $1,050,000 per year or (b) the following expected annual cash flows: $630,000, $315,000, $819,000, $840,000, and
Brief Exercise 12-26 NPV and IRR, Mutually Exclusive Projects Hunt Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment: CAM X and CAM Y. Both CAM X and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is $3,600,000, and
Brief Exercise 12-25 Internal Rate of Return Lisun Company produces a variety of gardening tools and aids. The company is examining the possibility of investing in a new production system that will reduce the costs of the current system. The new system will require a cash investment of $4,607,200
Brief Exercise 12-24 Net Present Value Snow Inc. has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,400,000. Producing the cell phone requires an investment in new equipment, costing $1,500,000. The cell phone has a projected life cycle
Brief Exercise 12-23 Accounting Rate of Return Uchdorf Company invested $9,000,000 in a new product line. The life cycle of the product is projected to be 7 years with the following net income stream: $360,000, $360,000, $600,000,$1,080,000, $1,200,000, $2,520,000, and $1,444,000.Required:Calculate
Brief Exercise 12-22 Payback Period Payson Manufacturing is considering an investment in a new automated manufacturing system.The new system requires an investment of $1,200,000 and either has (a) even cash flows of $300,000 per year or (b) the following expected annual cash flows: $150,000,
12-21 Refer to Exhibit 2.2 (p. 38) for a review of data analytic types. Assume there are two competing projects, A and B. Project A has an NPV of $6,000 and Project B has an NPV of $8,000. The calculation of NPV for each project and the conclusion that Project B should be chosen are good examples
12-20 Assume that there are two competing projects, A and B. Project A has an NPV of$1,000 and an IRR of 15%. Project B has an NPV of $800 and an IRR of 20%.Which of the following is true?a. Project A should be chosen because it has a higher NPV.b. Project B should be chosen because it has a higher
12-19 For competing projects, NPV is preferred to IRR becausea. maximizing IRR maximizes the wealth of the owners.b. in the final analysis, relative profitability is what counts.c. choosing the project with the largest NPV maximizes the wealth of the shareholders.d. assuming that cash flows are
12-18 Postaudits of capital projects are useful becausea. they are not very costly.b. they have no significant limitations.c. the assumptions underlying the original analyses are often invalidated by changes in the actual working environment.d. they help to ensure that resources are used wisely.e.
12-17 A postaudita. is a follow-up analysis of a capital project, once implemented.b. compares the actual benefits with the estimated benefits.c. evaluates the overall outcome of the investment.d. proposes corrective action, if needed.e. All of these.
12-16 Using IRR, a project is rejected if the IRRa. is equal to the required rate of return.b. is less than the required rate of return.c. is greater than the cost of capital.d. is greater than the required rate of return.e. produces an NPV equal to zero.
Which of the following is not true regarding the IRR?a. The IRR is the interest rate that sets the present value of a project’s cash inflows equal to the present value of the project’s cost.b. The IRR is the interest rate that sets the NPV equal to zero.c. The popularity of IRR may be
12-14 Assume that an investment of $1,000 produces a future cash flow of $1,000. The discount factor for this future cash flow is 0.80. The NPV isa. $0.b. $110.c. ($200).d. $911.e. None of these.
12-13 If the present value of future cash flows is $4,200 for an investment that requires an outlay of $3,000, the NPVa. is $200.b. is $1,000.c. is $1,200.d. is $2,200.e. cannot be determined.
12-12 Using NPV, a project is rejected if it isa. equal to zero.b. negative.c. positive.d. equal to the required rate of return.e. greater than the cost of capital.
12-11 NPV is calculated by usinga. the required rate of return.b. accounting income.c. the IRR.d. the future value of cash flows.e. None of these.
12-10 NPV measuresa. the profitability of an investment.b. the change in wealth.c. the change in firm value.d. the difference in present value of cash inflows and outflows.e. All of these.
12-9 If the NPV is positive, it signalsa. that the initial investment has been recovered.b. that the required rate of return has been earned.c. that the value of the firm has increased.d. All of these.e. Both a and b.
12-8 An investment of $2,000 provides an average net income of $400. Depreciation is$40 per year with zero salvage value. The ARR using the initial investment isa. 44%.b. 22%.c. 20%.d. 40%.e. None of these.
The ARR has one specific advantage not possessed by the payback period in that ita. considers the time value of money.b. measures the value added by a project.c. is always an accurate measure of profitability.d. is more widely accepted by financial managers.e. considers the profitability of a
12-6 The payback period suffers from which of the following deficiencies?a. It is a rough measure of the uncertainty of future cash flows.b. It helps control the risk of obsolescence.c. It ignores the uncertainty of future cash flows.d. It ignores the financial performance of a project beyond the
12-5 An investment of $1,000 produces a net cash inflow of $500 in the first year and$750 in the second year. What is the payback period?a. 1.67 yearsb. 0.50 yearc. 2.00 yearsd. 1.20 yearse. Cannot be determined
12-4 An investment of $6,000 produces a net annual cash inflow of $2,000 for each of 5 years. What is the payback period?a. 2 yearsb. 1.5 yearsc. Unacceptabled. 3 yearse. Cannot be determined
12-3 Mutually exclusive capital budgeting projects are those thata. whether accepted or rejected do not affect the cash flows of other projects.b. if accepted will produce a negative NPV.c. if rejected preclude the acceptance of all other competing projects.d. if accepted preclude the acceptance of
12-2 To make a capital investment decision, a manager musta. estimate the quantity and timing of cash flows.b. assess the risk of the investment.c. consider the impact of the investment on the firm’s profits.d. choose a decision criterion to assess viability of the investment (such as payback
Capital investments shoulda. always produce an increase in market share.b. only be analyzed using the ARR.c. earn back their original capital outlay plus a reasonable return.d. always be done using a payback criterion.e. None of these.
A hospital is considering the possibility of two new purchases: new X-ray equipment and new biopsy equipment. Each project would require an investment of $750,000. The expected life for each is 5 years with no expected salvage value. The net cash inflows associated with the two independent projects
Kenn Day, manager of Day Laboratory, is investigating the possibility of acquiring some new test equipment. The equipment requires an initial outlay of $300,000. To raise the capital, Kenn will sell stock valued at $200,000 (the stock pays dividends of $24,000 per year) and borrow $100,000. The
How to calculate net present value and internal rate of return for mutually exclusive projects?
How to calculate internal rate of return with uniform cash flows?
How to assess cash flows and calculate net present value?
How to calculate the accounting rate of return?
How to calculate the payback period?
What is meant by discount rate?
How much will you receive in 2 years if you invest $100 with an interest rate of 10%?
Why is NPV better than IRR for choosing among competing projects?
What are the three steps for using NPV to choose among competing projects?
Consider two pollution prevention designs: Design A and Design B. Both designs have a project life of 5 years. Design A requires an initial outlay of $180,000 and has a net annual after-tax cash inflow of $60,000 (revenues of $180,000 minus cash expenses of$120,000). Design B, with an initial
Explain how postaudits improve managerial decision-making.
What is the definition of IRR?
Suppose that a project requires an investment of $20,000, and it produces a single period cash flow of $25,000. What is the IRR of the project?
Assume that a hospital has the opportunity to invest $205,570.50 in a new ultrasound system that will produce net cash inflows of $50,000 at the end of each of the next 6 years.Required:Calculate the IRR for the ultrasound system.
Explain why the required rate of return is sometimes chosen to be greater than a firm’s cost of capital.
Suppose that the NPV of an investment is $2,000. Why does this mean that the investment should be accepted?
A detailed market study revealed expected annual revenues of $300,000 for new earphones.Equipment to produce the earphones will cost $320,000. After 5 years, the equipment can be sold for $40,000. In addition to equipment, working capital is expected to increase by$40,000 because of increases in
Why would a manager use the payback period to help make an investment decision when it ignores both profitability and the time value of money?
Why would a manager choose only investments that return the highest net income per dollar invested?
An investment requires an initial outlay of $100,000 and has a 5-year life with no salvage value. The company uses straight line depreciation. The yearly cash flows are $50,000,$50,000, $60,000, $50,000, and $70,000.Required:Calculate the annual net income for each of the 5 years.Calculate the
Suppose that a new car wash facility requires an investment of $100,000 and either has(a) even cash flows of $50,000 per year or (b) the following expected annual cash flows:$30,000, $40,000, $50,000, $60,000, and $70,000.Required:Calculate the payback period for each case.
What is the difference between independent and mutually exclusive investments?
A sound capital investment must(a) earn back most of its original outlay.(b) cover the opportunity cost of the funds invested.(c) have a high level of risk.(d) not affect a company’s profits.
Why is NPV better than IRR for choosing among competing projects?
What are the three steps for using NPV to choose among competing projects?
Jason Kemp was torn between conflicting emotions. On the one hand, things were going so well.He had just completed 6 months as the assistant financial manager in the Electronics Division of Med-Products Inc. The pay was good, he enjoyed his coworkers, and he felt that he was part of a team that was
A company like Kicker performs warranty repair work on speakers in a manufacturing cell.The typical warranty repair involves taking the defective speaker apart, testing the components, and replacing the defective components. The maximum capacity of the cell is 1,000 repairs per month. There are 500
The following list gives a number of measures associated with the Balanced Scorecard:a. Number of new customersb. Percentage of customer complaints resolved with one contactc. Unit product costd. Cost per distribution channele. Suggestions per employeef. Warranty repair costs g. Consumer
The theoretical cycle time for a product is 30 minutes per unit. The budgeted conversion costs for the manufacturing cell are $2,700,000 per year. The total labor minutes available are 600,000. During the year, the cell was able to produce 1.5 units of the product per hour. Suppose also that
Techno Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximize ROI and EVA. Managers are essentially free to determine whether goods will be transferred internally and what the internal transfer prices will be. Headquarters has directed that
Lansing Electronics Inc. manufactures a variety of printers, scanners, and fax machines in its two divisions: the PSF Division and the Components Division. The Components Division produces electronic components that can be used by the PSF Division. All the components this division produces can be
GreenWorld Inc. is a nursery products firm. It has three divisions that grow and sell plants: the Western Division, the Southern Division, and the Canadian Division. Recently, the Southern Division of GreenWorld acquired a plastics factory that manufactures green plastic pots. These pots can be
Knitpix Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income of $310,000 based on sales of $3.45 million. Without any new investments, the division will have average operating assets of $3 million. The division is considering a capital investment
The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a turbocharger. Without the investments, the
Ready Electronics is facing stiff competition from imported goods. Its operating income margin has been declining steadily for the past several years. The company has been forced to lower prices so that it can maintain its market share. The operating results for the past 3 years are as follows:For
The division manager of HFD Inc., was debating the merits of a new product—a toy drone with a flying radius of 25 feet.The budgeted income of the division was $849,200 with operating assets of $3,860,000.The proposed investment would add income of $360,000 and would require an additional
Kurena Company provided the following information on one of its factories:Maximum units produced in a quarter: 180,000 units Actual units produced in a quarter: 112,500 units Hours of cell production labor in a quarter: 30,000 hours Theoretical cycle time: 10 minutes per unit Actual cycle time: 16
Alikaj Company found that one of its manufacturing cells had actual cycle time of 15 minutes per unit. The theoretical cycle time for this cell was 12 minutes per unit.Required:1. Calculate the amount of processing time per unit and the amount of nonprocessing time per unit.2. Calculate the MCE.
Beloit Company divided its factory into manufacturing cells. Each cell produces one product.The cordless drill cell had the following data for last quarter:Maximum units produced in a quarter: 80,000 units Actual units produced in a quarter: 60,000 units Hours of cell production labor in a quarter:
Prakesh Company has the following data for one of its manufacturing cells:Maximum units produced in 1 month: 50,000 units Actual units produced in 1 month: 40,000 units Hours of production labor in 1 month: 10,000 hours Required:Compute the (1) theoretical cycle time (in minutes), (2) actual cycle
Refer to the information for Algodones Inc. . Also, although the Mattress Division has been operating at capacity (50,000 mattresses per year), it expects to produce and sell only 40,000 mattresses for $230 each next year. The Mattress Division incurs variable costs of $90 per mattress. The company
Refer to the information for Algodones Inc.. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved.Algodones Inc. has a number of divisions, including a Mattress Division and a Furniture Division. The Furniture Division owns and operates a chain
Refer to the information for Algodones Inc..Algodones Inc. has a number of divisions, including a Mattress Division and a Furniture Division. The Furniture Division owns and operates a chain of furniture stores in the Midwest. Each year, the Furniture Division purchases mattresses for its bedroom
Refer to the information for Leesum Company. In addition, Leesum Company’s top management has set a minimum acceptable rate of return equal to 9%.Leesum Company has two divisions: the Leone Division and the Letwo Division.The following information pertains to last year’s results:Required:1.
Refer to the information for Leesum Company.Leesum Company has two divisions: the Leone Division and the Letwo Division.The following information pertains to last year’s results:Required:1. Calculate the EVA for the Leone Division.2. Calculate the EVA for the Letwo Division.3. Conceptual
Exercise 11-30 Economic Value Added Falconer Company had net (after-tax) income last year of $12,375,400 and total capital employed of $111,754,000. Falconer’s actual cost of capital was 9%.Required:1. Calculate the EVA for Falconer Company.2. Conceptual Connection Is Falconer creating or
The Orlon Division of Mondragon Company had operating income last year of $118,000 and average operating assets of $1,900,000. Mondragon’s minimum acceptable rate of return is 7%.(Note: Round all answers to two decimal places.)Required:1. Calculate the residual income for the Orlon Division.2.
Data follow for Andrus Inc.:Required:1. Compute the margin and turnover ratios for each year.2. Compute the ROI for the company for each year. Sales Operating income Average operating assets Year 1 $ 46,000,000 4,000,000 164,000,000 Year 2 $ 48,000,000 4,000,000 150,000,000
Nakamura Company provided the following income statement for the last year:Sales $728,000,000 Less: Variable expenses 490,175,000 Contribution margin $237,825,000 Less: Fixed expenses 128,625,000 Operating income $109,200,000 At the beginning of last year, the company had $24,200,000 in operating
Margin, Turnover, Return on Investment Pelak Company had sales of $25,000,000, expenses of $17,500,000, and average operating assets of $10,000,000.Required:Compute the (1) operating income, (2) margin and turnover ratios, and (3) ROI.
Consider each of the following independent scenarios:a. Terrin Belson, plant manager for the laser printer factory of Compugear Inc., brushed his hair back and sighed. December had been a bad month. Two machines had broken down, and some factory production workers (all on salary) were idled for
Brief Exercise 11-24 (Appendix 11A) Calculating Manufacturing Cycle Efficiency Refer to the information for Theta Company on the previous page. The actual cycle time for Theta Company is 3.2 minutes, and the theoretical cycle time is 3 minutes.Required:1. Calculate the amount of processing time and
Brief Exercise 11-23 (Appendix 11A) Calculating Cycle Time and Velocity Refer to the information for Theta Company above.Required:Compute the (1) theoretical cycle time (in minutes), (2) actual cycle time (in minutes), (3) theoretical velocity in units per hour, and (4) actual velocity in units per
Brief Exercise 11-22 Calculating Transfer Price Teslum Inc. has a number of divisions, including the Machina Division, a producer of high-end espresso makers, and the Java Division, a chain of coffee shops.Machina Division produces the EXP-100 model espresso maker that can be used by Java Division
Brief Exercise 11-21 Calculating Economic Value Added Refer to the information for Barnard Manufacturing on the previous page. Total capital employed equaled $1,400,000. Barnard’s actual cost of capital is 12%.Required:Calculate the EVA for Barnard Manufacturing.
Brief Exercise 11-20 Calculating Residual Income Refer to the information for Barnard Manufacturing on the previous page. Barnard requires a minimum rate of return of 15%.Required:Calculate (1) average operating assets and (2) residual income.
Refer to the information for Barnard Manufacturing. Round answers to two decimal places.Barnard Manufacturing earned operating income last year as reported in the following income statement:Sales $4,000,000 Cost of goods sold 2,100,000 Gross margin $1,900,000 Selling and administrative expense
Calculating Manufacturing Cycle Efficiency Refer to the information for Indy Company above. The actual cycle time for Indy Company is 7.5 minutes, and the theoretical cycle time is 6 minutes.Required:1. Calculate the amount of processing time and the amount of nonprocessing time.2. Calculate the
Brief Exercise 11-17 (Appendix 11A) Calculating Cycle Time and Velocity Refer to the information for Indy Company above.Required:Compute the (1) theoretical cycle time (in minutes), (2) actual cycle time (in minutes), (3)theoretical velocity in units per hour, and (4) actual velocity in units per
Brief Exercise 11-16 Calculating Transfer Price Burt Inc. has a number of divisions, including the Birch Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines.Birch Division produces the h20-model pump that can be used by Maple Division in the production of motors
Brief Exercise 11-15 Calculating Economic Value Added Refer to the information for East Mullett Manufacturing above. Total capital employed equaled$1,200,000. East Mullett’s actual cost of capital is 4%.Required:Calculate the EVA for East Mullett Manufacturing.
Brief Exercise 11-14 Calculating Residual Income Refer to the information for East Mullett Manufacturing above. East Mullett requires a minimum rate of return of 5%.Required:Calculate (1) average operating assets and (2) residual income.
Refer to the information for East Mullett Manufacturing above. Round answers to two decimal places.Required:Calculate (1) average operating assets, (2) margin, (3) turnover, and (4) return on investment.
The length of time it takes to produce a unit of output from the time raw materials are received until the good is delivered to finished goods inventory is calleda. velocity.b. cycle time.c. manufacturing cycle efficiency.d. theoretical cycle time.e. theoretical MCE.
(Appendix 11A) Which of the following is a perspective of the Balanced Scorecard?a. Learning and growth (infrastructure)b. Internal business processc. Customerd. Financiale. All of these
Refer to the information above. If Division A is operating at less than full capacity, the minimum transfer price (the floor of the bargaining range) isa. $38.b. $50.c. $44.d. $47.e. There is no bargaining range.
Refer to the information above. If Division A is operating at full capacity, the maximum transfer price (the ceiling of the bargaining range) isa. $38.b. $50.c. $44.d. $47.e. There is no bargaining range.
If ROI for a division is 15% and the company’s minimum required cost of capital is 18%, thena. residual income for the division is negative.b. residual income for the division takes on a value between 0 and +1.c. residual income cannot be computed.d. EVA must be negative.e. residual income is
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