1. Jackson has a loan that requires a $17,800 lump sum payment at the end of four years. The interest rate on the loan is 5%, compounded annually. How much did Jackson borrow today?
$16,910
$14,240
$12,045
$14,644
$16,065
2. Cody invests $3,500 per year from his summer wages at a 4% annual interest rate. He plans to take a European vacation at the end of 4 years when he graduates from college. How much will he have available to spend on his vacation?
$15,142.40
$14,560.00
$13,440.00
$14,000.00
$14,862.75
3. Patricia wants to invest a sum of money today that will yield $22,000 at the end of 6 years. Assuming she can earn an interest rate of 6% compounded annually, how much must she invest today?
$15,510
$20,680
$13,200
$19,373
$19,373
4. A company has $47,000 today to invest in a fund that will earn 4% compounded annually. How much will the fund contain at the end of 6 years?
$59,469
$48,880
$59,338
$58,280
$63,944
5. A company needs to have $105,000 in 5 years, and will create a fund to insure that the $105,000 will be available. If it can earn a 6% return compounded annually, how much must the company invest in the fund today to equal the $105,000 at the end of 5 years?
$78,467
$98,700
$140,506
$31,500
$73,500
6. Jessica received a gift of $7,000 at the time of her high school graduation. She invests it in an account that yields 10% compounded semi-annually. What will the value of Jessica's investment be at the end of 5 years?
$10,500.00
$7,700.00
$11,402.30
$8,750.00
$9,800.00
7. A company is considering investing in a project that is expected to return $290,000 five years from now. How much is the company willing to pay for this investment if the company requires a 10% return?
$290,000
$95,317
$180,061
$13,242
$223,400
8. The Masterson family is setting up a vacation fund, and they plan on depositing $1,600 per quarter in an investment that will pay 12% annual interest. What amount will they have available for their vacation at the end of 2 years?
$12,800.00
$14,336.00
$14,227.68
$13,184.00
$13,579.52
9. An individual is planning to set-up an education fund for her daughter. She plans to invest $7,900 annually at the end of each year. She expects to withdraw money from the fund at the end of 9 years and expects to earn an annual return of 8%. What will be the total value of the fund at the end of 9 years?
$98,655
$76,788
$56,880
$142,200
$51,497
10. Jason has a loan that requires a single payment of $5,600 at the end of 3 years. The loan's interest rate is 8%, compounded semiannually. How much did Jason borrow?
$4,434.40
$5,600.00
$4,736.40
$4,425.68
$5,852.40
11. A company is planning to purchase a machine that will cost $35,400, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?
|
Sales
|
|
$147,000
|
|
Costs:
|
|
|
|
Manufacturing
|
$53,900
|
|
|
Depreciation on machine
|
5,900
|
|
|
Selling and administrative expenses
|
49,000
|
(108,800)
|
|
|
|
|
|
Income before taxes
|
|
$38,200
|
|
Income tax (35%)
|
|
(13,370)
|
|
|
|
|
|
Net income
|
|
$24,830
|
|
|
|
|
70.14%.
50.00%.
5.90%.
33.33%.
140.28%
12. A company can buy a machine that is expected to have a three-year life and a $39,000 salvage value. The machine will cost $1,836,000 and is expected to produce a $209,000 after-tax net income to be received at the end of each year. If a table of present values of 1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%?
$132,496
$602,895
$644,138
$721,463
$1,968,496
13. Carmel Corporation is considering the purchase of a machine costing $47,000 with a 7-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?
$47,000.
$23,500.
$26,857.
$7,673.
$6,714.
14. Butler Corporation is considering the purchase of new equipment costing $72,000. The projected annual after-tax net income from the equipment is $2,600, after deducting $24,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 8% return on its investments. The present value of an annuity of 1 for different periods follows:
|
Periods
|
8 Percent
|
|
1
|
0.9259
|
|
2
|
1.7833
|
|
3
|
2.5771
|
|
4
|
3.3121
|
What is the net present value of the machine?
$61,850.
$7,800.
$68,551.
$(3,449).
$72,000.
15. Requires a modern browser - e.g. Safari 1, Netscape 6 or IE 5
The following present value factors are provided for use in this problem.
|
Periods
|
Present value
of 1 at 10%
|
Present value of an annuity of 1 at 10%
|
|
1
|
0.9091
|
0.9091
|
|
2
|
0.8264
|
1.7355
|
|
3
|
0.7513
|
2.4869
|
|
4
|
0.6830
|
3.1699
|
Cliff Co. wants to purchase a machine for $54,000, but needs to earn an 10% return. The expected year-end net cash flows are $20,000 in each of the first three years, and $24,000 in the fourth year. What is the machine's net present value (round to the nearest whole dollar)?
$(4,262).
$12,130.
$66,130.
$(37,608).
$84,000.
16. Poe Company is considering the purchase of new equipment costing $87,500. The projected net cash flows are $42,500 for the first two years and $37,500 for years three and four. The revenue is to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine.
Periods Present Valueof 1 at 10% Present Value of anAnnuity of 1 at 10%
|
Periods
|
8 Percent
|
|
1
|
0.9259
|
|
2
|
1.7833
|
|
3
|
2.5771
|
|
4
|
3.3121
|
$(32,005).
$(18,479).
$32,005.
$18,479.
$40,049.
17. Poe Company is considering the purchase of new equipment costing $85,000. The projected annual cash inflows are $35,200, to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine.
|
Periods
|
Present Value of 1 at 10%
|
Present Value of an Annuity of 1 at 10%
|
|
1
|
0.9091
|
0.9091
|
|
2
|
0.8264
|
1.7355
|
|
3
|
0.7513
|
2.4869
|
|
4
|
0.6830
|
3.1699
|
$13,951.
$(13,951).
$(26,580).
$44,220.
$26,580.
18. The following data concerns a proposed equipment purchase:
|
Cost
|
$155,400
|
|
Salvage value
|
$4,600
|
|
Estimated useful life
|
4 years
|
|
Annual net cash flows
|
$46,700
|
|
Depreciation method
|
Straight-line
|
The annual average investment amount used to calculate the accounting rate of return is:
rev: 06_01_2016_QC_CS-50109
$77,700
$75,400
$38,850
$80,000
$54,350
19. A company is planning to purchase a machine that will cost $36,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?
|
Sales
|
|
$150,000
|
|
Cost:
|
|
|
|
Manufacturing
|
$54,000
|
|
|
Depreciation on machine
|
6,000
|
|
|
Selling and administrative expenses
|
50,000
|
(110,000)
|
|
|
|
|
|
Income before taxes
|
|
$40,000
|
|
Income tax (30%)
|
|
(12,000)
|
|
|
|
|
|
Net income
|
|
$28,000
|
|
|
|
|
2.57 years.
1.29 years.
3.94 year.
1.06 years.
6.00 years.
20. A company buys a machine for $62,000 that has an expected life of 7 years and no salvage value. The company anticipates a yearly net income of $2,950 after taxes of 34%, with the cash flows to be received evenly throughout each year. What is the accounting rate of return?
4.76%.
3.24%.
33.31%.
6.28%.
9.52%.
21. Lattimer Company had the following results of operations for the past year:
|
Sales (15,000 units at $12.50)
|
|
$187,500
|
|
Variable manufacturing costs
|
$105,000
|
|
|
Fixed manufacturing costs
|
28,500
|
|
|
Selling and administrative expenses (all fixed)
|
43,500
|
(177,000)
|
|
Operating income
|
|
$10,500
|
A foreign company whose sales will not affect Lattimer's market offers to buy 6,000 units at $8.50 per unit. In addition to existing costs, selling these units would add a $0.35 selling cost for export fees. If Lattimer accepts this additional business, the special order will yield a:
$9,000 profit.
$2,400 loss.
$4,500 loss.
$6,900 profit.
$10,500 loss.
22. Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3.10 per unit. Bluebird currently produces and sells 75,000 units at $7.10 each. This level represents 80% of its capacity. Production costs for these units are $3.65 per unit, which includes $2.30 variable cost and $1.35 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:
$46,500 increase.
$12,000 increase.
$34,500 increase.
$8,250 decrease.
$34,500 decrease.
23. Granfield Company has a piece of manufacturing equipment with a book value of $39,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $21,800. Granfield can purchase a new machine for $118,000 and receive $21,800 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $18,800 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:
$21,000 increase
$75,200 decrease
$17,200 decrease
$51,300 increase
$21,000 decrease
24. Walters manufactures a specialty food product that can currently be sold for $22.50 per unit and has 20,500 units on hand. Alternatively, it can be further processed at a cost of $12,500 and converted into 12,500 units of Deluxe and 6,500 units of Super. The selling price of Deluxe and Super are $30.50 and $20.50, respectively. The incremental net income of processing further would be:
$53,250.
$40,750.
$18,500.
$44,500.
$12,500.
25. Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $9.40; direct labor, $13.40, variable overhead $2.40 and fixed overhead, $7.40. An outside supplier has offered to sell the product to Paxton for $32.60. Compute the net incremental cost or savings of buying the component.
$2.40 cost per unit.
$7.40 savings per unit.
$0 cost or savings per unit.
$7.40 cost per unit.
$2.40 savings per unit.
26. Granfield Company is considering eliminating its backpack division, which reported an operating loss for the recent year of $42,800. The division sales for the year were $975,200 and the variable costs were $483,000. The fixed costs of the division were $535,000. If the backpack division is dropped, 40% of the fixed costs allocated to that division could be eliminated. The impact on Granfield's operating income for eliminating this business segment would be:
$278,200 increase
$492,200 decrease
$214,000 increase
$278,200 decrease
$492,200 increase
27. Chang Industries has 3,000 defective units of product that have already cost $15.00 each to produce. A salvage company will purchase the defective units as they are for $6.00 each. Chang's production manager reports that the defects can be corrected for $5.00 per unit, enabling them to be sold at their regular market price of $23.00. The incremental income or loss on reworking the units is:
$36,000 loss.
$36,000 income.
$15,000 loss.
$51,000 income.
$54,000 income.
28. Factor Co. can produce a unit of product for the following costs:
|
Direct material
|
$8.60
|
|
Direct labor
|
24.60
|
|
Overhead
|
43.00
|
|
Total costs per unit
|
$76.20
|
An outside supplier offers to provide Factor with all the units it needs at $48.40 per unit. If Factor buys from the supplier, the company will still incur 60% of its overhead. Factor should choose to:
Buy since the relevant cost to make it is $59.00.
Make since the relevant cost to make it is $50.40.
Buy since the relevant cost to make it is $50.40.
Make since the relevant cost to make it is $33.20.
Buy since the relevant cost to make it is $33.20.
29. Maxim manufactures a cat food product called Green Health. Maxim currently has 10,000 bags of Green Health on hand. The variable production costs per bag are $2.40 and total fixed costs are $10,000. The cat food can be sold as it is for $9.65 per bag or be processed further into Premium Green and Green Deluxe at an additional $2,600 cost. The additional processing will yield 10,000 bags of Premium Green and 3,600 bags of Green Deluxe, which can be sold for $8.65 and $6.65 per bag, respectively. If Green Health is processed further into Premium Green and Green Deluxe, the total gross profit would be:
$107,840.
$73,840.
$113,040.
$83,840.
$110,440.
30. Minor Electric has received a special one-time order for 1,200 light fixtures (units) at $18 per unit. Minor currently produces and sells 6,000 units at $19.00 each. This level represents 75% of its capacity. Production costs for these units are $24.00 per unit, which includes $16.00 variable cost and $8.00 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $800 with a zero salvage value. Management expects no other changes in costs as a result of the additional production. If Minor wishes to earn $1,600 on the special order, the size of the order would need to be:
67 units.
1,200 units.
1,125 units.
4,800 units.
2,400 units.
31. 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 $382,400 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis.The company expects to sell 152,960 units of the equipment's product each year. The expected annual income related to this equipment follows. If at least an 9% return on this investment must be earned, compute the net present value. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
|
|
|
|
|
|
Sales
|
$
|
239,000
|
|
|
Costs
|
|
|
|
|
Materials, labor, and overhead (except depreciation on new equipment)
|
|
84,000
|
|
|
Depreciation on new equipment
|
|
63,733
|
|
|
Selling and administrative expenses
|
|
23,900
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
171,633
|
|
|
|
|
|
|
|
Pretax income
|
|
67,367
|
|
|
Income taxes (30%)
|
|
20,210
|
|
|
|
|
|
|
|
Net income
|
$
|
47,157
|
|
|
|
|
|
|
|
Compute the net present value of this investment.
Most Company has an opportunity to invest in one of two new projects. Project Y requires a $310,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $310,000 investment for new machinery with a five-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
|
|
Project Y
|
Project Z
|
|
Sales
|
|
$
|
385,000
|
|
|
|
$
|
308,000
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Direct materials
|
|
|
53,900
|
|
|
|
|
38,500
|
|
|
|
Direct labor
|
|
|
77,000
|
|
|
|
|
46,200
|
|
|
|
Overhead including depreciation
|
|
|
138,600
|
|
|
|
|
138,600
|
|
|
|
Selling and administrative expenses
|
|
|
28,000
|
|
|
|
|
27,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
297,500
|
|
|
|
|
250,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
|
87,500
|
|
|
|
|
57,700
|
|
|
|
Income taxes (40%)
|
|
|
35,000
|
|
|
|
|
23,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
52,500
|
|
|
|
$
|
34,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determine each project's net present value using 7% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)