1)
A company is considering the purchase of a new machine for$66,000. Management predicts that the machine can produce sales of$22,000 each year for the next 10 years. Expenses are expected toinclude direct materials, direct labor, and factory overheadtotaling $10,400 per year including depreciation of $5,800 peryear. The company's tax rate is 40%. What is the payback period forthe new machine?
3.00 years.
6.73 years.
5.17 years.
11.38 years.
17.19 years.
2)
Butler Corporation is considering the purchase of new equipmentcosting $84,000. The projected annual after-tax net income from theequipment is $3,000, after deducting $28,000 for depreciation. Therevenue is to be received at the end of each year. The machine hasa useful life of 3 years and no salvage value. Butler requires a 9%return on its investments. The present value of an annuity of 1 fordifferent periods follows:
Periods 9 Percent 1 0.9174 2 1.7591 3 2.5313 4 3.2397
What is the net present value ofthe machine? (closest to)
$70,876.
$78,470.
$9,000.
$84,000.
$(5,530).
3)
A company is considering a new project that will cost $19,000.This project would result in additional annual revenues of $6,000for the next 5 years. The $19,000 cost is an example of a(n):
Sunk cost.
Fixed cost.
Incremental cost.
Uncontrollable cost.
Opportunity Cost
1)
A company is considering the purchase of a new machine for$66,000. Management predicts that the machine can produce sales of$22,000 each year for the next 10 years. Expenses are expected toinclude direct materials, direct labor, and factory overheadtotaling $10,400 per year including depreciation of $5,800 peryear. The company's tax rate is 40%. What is the payback period forthe new machine? |
3.00 years.
6.73 years.
5.17 years.
11.38 years.
17.19 years.
2)
Butler Corporation is considering the purchase of new equipmentcosting $84,000. The projected annual after-tax net income from theequipment is $3,000, after deducting $28,000 for depreciation. Therevenue is to be received at the end of each year. The machine hasa useful life of 3 years and no salvage value. Butler requires a 9%return on its investments. The present value of an annuity of 1 fordifferent periods follows: |
| Periods | 9 Percent |
| 1 | 0.9174 |
| 2 | 1.7591 |
| 3 | 2.5313 |
| 4 | 3.2397 |
| What is the net present value ofthe machine? (closest to) |
$70,876.
$78,470.
$9,000.
$84,000.
$(5,530).
3)
A company is considering a new project that will cost $19,000.This project would result in additional annual revenues of $6,000for the next 5 years. The $19,000 cost is an example of a(n):
Sunk cost.
Fixed cost.
Incremental cost.
Uncontrollable cost.
Opportunity Cost
Related questions
1)
A company is planning to purchase a machine that will cost$30,600, have a six-year life, and be depreciated over a three-yearperiod with no salvage value. The company expects to sell themachine's output of 3,000 units evenly throughout each year. Aprojected income statement for each year of the asset's lifeappears below. What is the accounting rate of return for thismachine? |
| Sales | $123,000 | |
| Costs: | ||
| Manufacturing | $53,100 | |
| Depreciation onmachine | 5,100 | |
| Selling andadministrative expenses | 41,000 | (99,200) |
| Income beforetaxes | $23,800 | |
| Income tax(30%) | (7,140) | |
| Net income | $16,660 | |
108.89%.
50.00%.
54.44%.
33.33%.
5.10%.
2)
Alfarsi Industries uses the net present value method to makeinvestment decisions and requires a 15% annual return on allinvestments. The company is considering two different investments.Each require an initial investment of $14,400 and will produce cashflows as follows:
| End ofYear | Investment | |
| A | B | |
| 1 | $9,600 | $0 |
| 2 | 9,600 | 0 |
| 3 | 9,600 | 28,800 |
The present value factors of $1 each year at 15% are:
| 1 | 0.8696 |
| 2 | 0.7561 |
| 3 | .6575 |
The present value of an annuity of $1 for 3 years at 15% is2.2832
The net present value of Investment A is:
$18,936.
$(14,400).
$14,400.
$(21,919).
$7,519.
3)
Paxton Company can produce a component of its product thatincurs the following costs per unit: direct materials, $10.80;direct labor, $14.80, variable overhead, $3.80 and fixed overhead,$8.80. An outside supplier has offered to sell the product to Axlefor $38.20. Compute the net incremental cost or savings of buyingthe component.
$8.80 savings per unit.
$3.80 cost per unit.
$0 cost or savings per unit.
$8.80 cost per unit.
$4 savings per unit.
4)
Granfield Company has a piece of manufacturing equipment with abook value of $36,000 and a remaining useful life of four years. Atthe end of the four years the equipment will have a zero salvagevalue. The market value of the equipment is currently $21,200.Granfield can purchase a new machine for $112,000 and receive$21,200 in return for trading in its old machine. The new machinewill reduce variable manufacturing costs by $18,200 per year overthe four-year life of the new machine. The total increase ordecrease in net income by replacing the current machine with thenew machine (ignoring the time value of money) is:
$18,000 increase
$72,800 decrease
$14,800 decrease
$49,200 increase
$18,000 decrease
1)
Chang Industries has 1,900 defective units of product that havealready cost $13.90 each to produce. A salvage company willpurchase the defective units as they are for $4.90 each. Chang'sproduction manager reports that the defects can be corrected for$6.10 per unit, enabling them to be sold at their regular marketprice of $20.80. The incremental income or loss on reworking theunits is:
$18,620 loss.
$18,620 income.
$11,590 loss.
$30,210 income.
$27,930 income.
2)
Maxim manufactures a hamster food product called Green Health.Maxim currently has 10,000 bags of Green Health on hand. Thevariable production costs per bag are $2.40 and total fixed costsare $10,000. The hamster food can be sold as it is for $9.65 perbag or be processed further into Premium Green and Green Deluxe atan additional $2,600 cost. The additional processing will yield10,000 bags of Premium Green and 3,600 bags of Green Deluxe, whichcan be sold for $8.65 and $6.65 per bag, respectively. The netadvantage (incremental income) of processing Green Health furtherinto Premium Green and Green Deluxe would be: |
$110,440.
$107,840.
$13,940.
$11,340.
$2,600.
3)
Bluebird Mfg. has received a special one-time order for 15,000bird feeders at $3.10 per unit. Bluebird currently produces andsells 75,000 units at $7.10 each. This level represents 80% of itscapacity. Production costs for these units are $3.65 per unit,which includes $2.30 variable cost and $1.35 fixed cost. IfBluebird accepts this additional business, the effect on net incomewill be:
$46,500 increase.
$12,000 increase.
$34,500 increase.
$8,250 decrease.
$34,500 decrease.
4)
Markson Company had the following results of operations for thepast year:
| Sales (8,000 units at$19.60) | $156,800 | |
| Variable manufacturingcosts | $84,400 | |
| Fixed manufacturing costs | 14,600 | |
| Variable selling andadministrative expenses | 10,400 | |
| Fixed selling and administrativeexpenses | 19,600 | (129,000) |
| Operating income | $27,800 |
A foreign company whose sales will not affect Markson's marketoffers to buy 2,000 units at $13.40 per unit. In addition tovariable manufacturing costs, selling these units would increasefixed overhead by $1,560 for the purchase of special tools. IfMarkson accepts this additional business, its profits will:
Increase by $3,100.
Decrease by $5,450.
Decrease by $1,560.
Increase by $1,540.
Decrease by $4,660.
5)
A company is considering the purchase of a new piece ofequipment for $93,200. Predicted annual cash inflows from thisinvestment are $38,000 (year 1), $29,000 (year 2), $19,000 (year3), $13,000 (year 4) and $8,000 (year 5). The payback periodis: |
4.45 years.
3.55 years.
2.55 years.
4.21 years.
3.00 years.
6)
A company is planning to purchase a machine that will cost$30,600, have a six-year life, and be depreciated over a three-yearperiod with no salvage value. The company expects to sell themachine's output of 3,000 units evenly throughout each year. Aprojected income statement for each year of the asset's lifeappears below. What is the accounting rate of return for thismachine? |
| Sales | $123,000 | |
| Costs: | ||
| Manufacturing | $53,100 | |
| Depreciation onmachine | 5,100 | |
| Selling andadministrative expenses | 41,000 | (99,200) |
| Income beforetaxes | $23,800 | |
| Income tax(30%) | (7,140) | |
| Net income | $16,660 | |
108.89%.
50.00%.
54.44%.
33.33%.
5.10%.
7)
The following present value factors are provided for use in thisproblem.
| Periods | Present Value of $1 at 8% | Present Value of anAnnuity of $1 at8% |
| 1 | 0.9259 | 0.9259 |
| 2 | 0.8573 | 1.7833 |
| 3 | 0.7938 | 2.5771 |
| 4 | 0.7350 | 3.3121 |
Xavier Co. wants to purchase a machine for $37,100 with a four yearlife and a $1,100 salvage value. Xavier requires an 8% return oninvestment. The expected year-end net cash flows are $12,100 ineach of the four years. What is the machine's net present value(round to the nearest whole dollar)?
$3,785.
$2,976.
$40,885.
$(3,785).
$(2,976).
8)
Alfarsi Industries uses the net present value method to makeinvestment decisions and requires a 15% annual return on allinvestments. The company is considering two different investments.Each require an initial investment of $14,400 and will produce cashflows as follows:
| End ofYear | Investment | |
| A | B | |
| 1 | $9,600 | $0 |
| 2 | 9,600 | 0 |
| 3 | 9,600 | 28,800 |
The present value factors of $1 each year at 15% are:
| 1 | 0.8696 |
| 2 | 0.7561 |
| 3 | .6575 |
The present value of an annuity of $1 for 3 years at 15% is2.2832
The net present value of Investment A is:
$18,936.
$(14,400).
$14,400.
$(21,919).
$7,519.
9)
Paxton Company can produce a component of its product thatincurs the following costs per unit: direct materials, $10.80;direct labor, $14.80, variable overhead, $3.80 and fixed overhead,$8.80. An outside supplier has offered to sell the product to Axlefor $38.20. Compute the net incremental cost or savings of buyingthe component.
$8.80 savings per unit.
$3.80 cost per unit.
$0 cost or savings per unit.
$8.80 cost per unit.
$4 savings per unit.
10)
Granfield Company has a piece of manufacturing equipment with abook value of $36,000 and a remaining useful life of four years. Atthe end of the four years the equipment will have a zero salvagevalue. The market value of the equipment is currently $21,200.Granfield can purchase a new machine for $112,000 and receive$21,200 in return for trading in its old machine. The new machinewill reduce variable manufacturing costs by $18,200 per year overthe four-year life of the new machine. The total increase ordecrease in net income by replacing the current machine with thenew machine (ignoring the time value of money) is:
$18,000 increase
$72,800 decrease
$14,800 decrease
$49,200 increase
$18,000 decrease
