shuhbam2607

shuhbam2607

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narender1006yadavIndian Institute of Technology - IIT Kanpur

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4. JAM is an apparel retailer that is listed in the Sun City Stock Exchange. JAM aims to be a design-driven, creative and responsible global fashion company with a passion for fashion and an ambition to always exceed customer expectations. Its business concept is to offer fashion and quality at the best price. The company has branded stores and franchises around the world and sells through concessions in third-party stores as well. The company also has licensing agreements globally, leveraging on the local and technical expertise of its license partners.JAM has a financial year which ends on 31 December and is subject to an income tax rate of 20%.

The table below is an extract from its financial statements for the year ended 31 Dec 2012 and provides information of the company's equipment:
 
 (million $)                                                                                2012
Equipment at cost (beginning balance)                                        13,605
Equipment net book value (beginning balance)                             7,134
Cost of equipment acquired during the year                                 3,466
Equipment depreciation expense                                                 1,750

JAM uses straight-line depreciation method for its equipment. All JAM's equipment has zero residual values and the company recognizes half a year of depreciation on assets acquired during the year.

 
Firms in the same industry usually depreciate their equipment on a straight-line basis with zero salvage value over a useful life of eight years.
 
Required
(a) Calculate the annual depreciation rate that JAM uses for its equipment. In addition, compute the average age of equipment.
(b) Compute the industry's average annual depreciation rate for equipment. What adjustments to JAM's (i) balance sheets of 2011 and 2012 and (ii) income statement of 2012, would be required if you assume that JAM uses the industry's average depreciation rate?
Answer: (a) To calculate the annual depreciation rate that JAM uses for its eq...

A review of the statement of financial position of Matvei Company revealed the following changes in the account balances:

Required:

1. Ā For each of the above items, indicate whether it produces a cash inflow or a cash outflow.

a. Increase in accounts receivable Cash inflow Cash outflow b. Increase in retained earnings Cash inflow Cash outflow c. Decrease in salaries payable Cash inflow Cash outflow d. Increase in common shares Cash inflow Cash outflow e. Decrease in inventory Cash inflow Cash outflow f. Increase in accounts payable Cash inflow Cash outflow g. Decrease in long-term debt Cash inflow Cash outflow h. Increase in property, plant, and equipment Cash inflow Cash outflow

2. Ā Classify each change as a cash flow from operating activities (indirect method), a cash flow from investing activities, or a cash flow from financing activities.

a. Increase in accounts receivable Operating activities Investing activities Financing activities b. Increase in retained earnings Operating activities Investing activities Financing activities c. Decrease in salaries payable Operating activities Investing activities Financing activities d. Increase in common shares Operating activities Investing activities Financing activities e. Decrease in inventory Operating activities Investing activities Financing activities f. Increase in accounts payable Operating activities Investing activities Financing activities g. Decrease in long-term debt Operating activities Investing activities Financing activities h. Increase in property, plant, and equipment Operating activities Investing activities Financing activities

Ā 

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The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery. This machinery has zero book value but its current market value is $1,000. One possible alternative is to invest in new machinery, which has a cost of $41,000. This new machinery would produce estimated annual operating cash savings of $13,500. The estimated useful life of the new machinery is four years. The DOT uses straight-line depreciation. The new machinery has an estimated salvage value of $2,200 at the end of four years. The investment in the new machinery would require an additional investment in working capital of $3,000, which would be recovered after four years.

If the DOT accepts this investment proposal, disposal of the old machinery and investment in the new equipment will take place on December 31, 20x1. The cash flows from the investment will occur during the calendar years 20x2 through 20x5.


Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

Prepare a net-present-value analysis of the county DOTĆ¢Ā€Ā™s machinery replacement decision. The county has a 10 percent hurdle rate. (Round your "Discount factors" to 3 decimal places and final dollar amounts to whole dollars. Negative amounts should be indicated by a minus sign.)

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