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1)

Accrual income versus cash flow for a period. Thomas Book Sales, Inc., supplies textbooks to college and university bookstores. The books are shipped with a proviso that they must be paid for within 30 days but can be returned for a full refund credit within 90 days. In 2018, Thomas shipped and billed book titles totaling $900,000. Collections, net of return credits, during the year totaled $826,517. The company spent $347,168 acquiring the books that it shipped.

a.Using accrual accounting and the preceding values, show the firm's net profit for the past year.

b. Using cash accounting and the preceding values, show the firm's net cash flow for the past year.

c. Which of these statements is more useful to the financial manager? Why?

2.)

Marginal cost-benefit analysis and the goal of the firmKen Allen, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $540,000 (in today's dollars) over the next 5 years. The existing robotics would produce benefits of $350,000 (also in today's dollars) over that same time period. An initial cash investment of $216,000 would be required to install the new equipment. The manager estimates that the existing robotics can be sold for $59,000. Show how Ken will apply marginal cost-benefit analysis techniques to determine the following:

a.The marginal benefits of the proposed new robotics.

b.The marginal cost of the proposed new robotics.

c.The net benefit of the proposed new robotics.

d.What should Ken recommend that the company do? Why?

e.What factors besides the costs and benefits should be considered before the final decision is made?