Answer:
b. An increase of $15 million
Explanation:
The computation of the cash impact of the change in working capital is shown below:
As we know that
Working capital = Current assets - current liabilities
So, the change in working capital is
= Increase in current assets - increased in current liabilities
= $40 million - $25 million
= $15 million
Hence, the b option is correct
Which of the following is a true statement about the limitation on business interest deductions? This limitation is not imposed on businesses with average annual gross receipts of $25 million of less for the prior three taxable years. A. Interest disallowed by this limitation is carried back three years and then forward five years B. The limitation is calculated as a percentage of the taxpayers total taxable income C. This limitation is not imposed on businesses with average annual gross receipts of $26 million or less for the prior three taxable years D. All of the choices are false E. All of the choices are true
Answer:
Limitation on Business Interest Deductions:
B. The limitation is calculated as a percentage of the taxpayers total taxable income
Explanation:
30% (or 50% for years 2019 and 2020, as amended by the CARES Act) of the adjusted taxable income of a business is the limit of business interest expense that is allowed by the IRS. The excess after this limitation may be carried forward by the tax paying organization to future tax years indefinitely until the interest expense is completely applied.
Following the CARES Act, "the business interest expense deduction limitation does not apply to certain small businesses whose gross receipts are $26 million or less, electing real property trades or businesses, electing farming businesses, and certain regulated public utilities. The $26 million gross receipts threshold, which applies for the 2020 tax year, is adjusted annually for inflation."
Mayan Company had net income of $37,380. The weighted-average common shares outstanding were 8,900. The company's earnings per share is: Multiple Choice $7.48. $5.36.
Answer:
$4.20.
Hie, the question you have provided is not complete, as it is missing all choices of options.
However important information to answer the question is provided below :
Earnings per share = Earnings Attributable to Holders of Common Shares ÷ Weighted Average Number of Common Shares
= $37,380 ÷ 8,900
= $4.20
Conclusion :
The company's earnings per share is: $4.20
g A decrease in the basis will __________ a long hedge and __________ a short hedger. Group of answer choices hurt; hurt hurt; benefit benefit; have no effect upon benefit; benefit benefit; hurt
Answer:
1. hurt
2. benefit
Explanation:
Given that a contract and an asset are to be converted in cash early, this implies that, basis risk exists and futures price and spot price should not move in lockstep before delivery date. However, a reduction in the basis will then hurt the long hedger and benefit the short hedger.
Hence, considering the nature of the hypothetical situation, a decrease in the basis will HURT a long hedge and BENEFIT a short hedge.
On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $71,000 and $2,900, respectively. During the year Kincaid reported $190,000 of credit sales. Kincaid wrote off $1,750 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $227,700. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.
The net realizable value of receivables appearing on Kincaid's Year 2 balance sheet will amount to:
a) $29,650.
b) $28,500.
c) $33,300.
d) $31,550.
Answer:
b) $28,500.
Explanation:
The computation of the net realizable value of receivables is shown below:
As we know that
Net realizable value = Gross account receivable - allowance for doubtful debts
where,
Gross account receivable is
= Beginning balance of the account receivable + credit sales - written off amount - collections
= $71,000 + $190,000 - $1,750 - $227,700
= $31,550
And, the allowance for doubtful debts is
= Beginning balance of allowance for doubtful debts - written off + allowance needed
= $2,900 - $1,750 + $190,000 × 1%
= $3,050
So, the net realizable value is
= $31,550 - $3,050
= $28,500
hence, the correct option is b. $28,500
ABC paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. ABC would report cash outflows from activities, as follows:
A) Operating, $12,000; Financing $6,000.
B) Operating, $0; Financing $18,000.
C) Operating, $18,000; Financing $0.
D) Operating, $2,000; Financing $16,000.
Answer: A) Operating, $12,000; Financing $6,000.
Explanation:
Operating Activities deal with the cashflow related to the operations of the business and it's short term obligations. Interest payments on loans are short term and are considered part of normal business operations so the outflow from Operating activities is;
= $2,000 interest on short-term notes payable + $10,000 interest on long-term bonds
= $12,000
Financing Activities relate to cash-flow surrounding the capital of the firm. This includes Equity and long term debt. Dividends have the impact of reducing equity and so will fall under Financing activities.
Dividends = Financing = $6,000
Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows: T-bond = 7.72% A = 9.64% AAA = 8.72% BBB = 10.18% The differences in rates among these issues were most probably caused primarily by:
Answer:
Investors are risk averse, which means that they are willing to invest in low risk projects or investments. In order for an investor to invest in a riskier project, he/she will expect to receive higher returns to compensate for the extra risk. US Treasury bonds are probably the safest investments in the world, that is why they yield the lowest interest rate. AAA bonds are less risky than BBB bonds, which in turn are less risky than CCC bonds. That is why AAA bonds yield a lower return than BBB bonds, and BBB bonds yield a lower return than CCC bonds.
Which of the following is a plausible explanation for the difference between the net change in fund balances of governmental funds (fund-level statement of revenues, expenditures, and changes in fund balances) and the change in net position of governmental activities (government-wide statement of activities)?
a. Some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
b. Amounts reported as expenditures in the statement of activities are reported as capital assets in the fund-level statements.
c. Debt proceeds provide current financial resources in the statement of activities, but are reported as long-term liabilities in the fund-level statements
d. Depreciation of general fixed assets is not reported as an expense in the statement of activities, but it is reported as an expense in the fund-level
Answer:
a. Some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
Explanation:
Governments maintain a statement of activities that are carried out, and fund-level statements are also maintained to track expenses of government.
When there is a disparity between the two, a plausible explanation will be that some expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund-level statements.
For example some long term project that is carried out by the government may be treated by creating a budget. These expenses will not be recognized in the current expenses that make up fund-level expenses.
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $620,000 cost with an expected four-year life and a $34,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round PV factor value to 4 decimal places.) Expected annual sales of new product $ 2,190,000 Expected annual costs of new product Direct materials 494,000 Direct labor 686,000 Overhead (excluding straight-line depreciation on new machine) 476,000 Selling and administrative expenses 174,000 Income taxes 30 % Required: 1. Compute straight-line depreciation for each year of this new machine’s life. 2. Determine expected net income and net cash flow for each year of this machine’s life. 3. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year. 4. Compute this machine’s accounting rate of return, assuming that income is earned evenly throughout each year. 5. Compute the net present value for this machine using a discount rate of 4% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the asset’s life.)
Answer:
1) depreciation expense per year = $146,500
2) net income:
years 1 - 4 = $149,450
net cash flows:
year 0 = -$620,000
year 1 = $295,950
year 2 = $295,950
year 3 = $295,950
year 4 = $329,950
3) payback period = 2.09 years
4) accounting rate of return = 24.1%
5) net present value (NPV) = $483,330.83
Explanation:
purchase cost of the machine $620,000
depreciation expense per year = ($620,000 - $34,000) / 4 = $146,500
expected annual sales $2,190,000
direct materials $494,000
direct labor $686,000
overhead (excluding depreciation) $476,000
S&A expenses $174,000
total costs (excluding depreciation) = $1,830,000
income taxes 30%
net income per year = ($2,190,000 - $1,830,000 - $146,500) x 70% = $149,450
net cash flow (years 1 - 3) = $149,450 + $146,500 = $295,950
net cash flow (year 4) = $149,450 + $146,500 + $34,000 = $329,950
payback period = $620,000 / $295,950 = 2.09 years
accounting rate of return = $149,450 / $620,000 = 24.1%
NPV, using a financial calculator = $483,330.83
The carrying value of Blossom’s net identifiable assets, including the goodwill, at year-end is $855,000. Prepare Cullumber’s journal entry, if necessary, to record impairment of goodwill.
Answer:
Goodwill Impairment (Debit)
Goodwill (Credit)
Explanation:
In case goodwill is impaired, then the entry to record this impairment will be Goodwill Impairment Debit and Goodwill Credit.
By crediting the Goodwill, the account will be reduced. This shows that the business is currently worth less than is accounted for. The Goodwill account is reduced to identify this difference.
The Impairment loss is an expense and must be reflected in the income statement. Therefore, while we reduce Goodwill amount from balance sheet. We record the expense on the income statement, which would mean that the current year profit amount will be reduced.
Slow 'n Steady, Inc., has a stock price of , will pay a dividend next year of , and has expected dividend growth of per year. What is your estimate of Slow 'and Steady cost of equity capital
Answer:
Slow 'and Steady cost of equity capital is 11%.
Explanation:
Note: The question is not complete as the important data are committed. The full question is therefore provided before answering the question as follows:
Slow n' steady Inc, has a stock price of $30, will pay a dividend next year of $3, and has expected dividend growth of 1% per year. what is your estimate of slow n steady's cost of equity capital?
The explanation to the answer is now given as follows:
The cost of equity can be calculated using the Gordon growth model (GGM) formula for calculating current stock price
The GGM has the assumption that there will be a stable dividend growth rate year after year forever.
Tje GGM formula is given as follows:
P = d1 / (r - g) ……………………………………… (1)
Where;
P = Current share price = $30
d1 = Next year dividend = $3
r = Required rate of return or cost of equity = ?
g = Expected dividend growth rate = 1%, or 0.01
Substituting the values into equation (1) and solve for r, we have:
30 = 3 / (r - 0.01)
r - 0.01 = 3 / 30
r - 0.01 = 0.10
r = 0.10 + 0.01
r = 0.11, or 11%
Therefore, Slow 'and Steady cost of equity capital is 11%.
Longman Company manufactures shirts. During June, Longman made 1,900 shirts but had budgeted production at 2,150 shirts. Longman gathered the following additional data:
Variable overhead cost standard $0.80 per DLHr
Direct labor efficiency standard 4.50 DLHr per shirt
Actual amount of direct labor hours 8,620 DLHr
Actual cost of variable overhead $10,344
Fixed overhead cost standard $0.10 per DLHr
Budgeted fixed overhead $968
Actual cost of fixed overhead $1,033
Required:
a. Calculate the variable overhead cost variance.
b. Calculate the variable overhead efficiency variance.
c. Calculate the total variable overhead variance.
d. Calculate the fixed overhead cost variance.
e. Calculate the fixed overhead volume variance
Answer:
a. variable overhead cost variance- $3,448 Unfavorable
b. variable overhead efficiency variance- $ 56 unfavorable
c. total variable overhead variance - $3,504 Unfavorable
d. fixed overhead cost variance - $65 unfavorable
e. Fixed overhead volume variance -$ 112.5 unfavorable
Explanation:
Variable overhead rate variance $
8,620 hours should have cost (8,620 × $0.80) 6896
but did cost 10,344
Variable overhead rate variance 3,448 Unfavorable
Variable overhead rate variance =$3,448 unfavorable
Efficiency variance Hours
190 units should have taken (1,900 × 4.50 hrs) 8,550
but did take 8,620
Efficiency variance in hours 70 unfavorable
Standard rate × $0.80
Efficiency variance $ 56 unfavorable
Efficiency variance =$ 56 unfavorable
Total variable overhead= rate variance +efficiency
Total variable overhead = $3,448 UF + $ 56 UF = $3,504 U
Total variable overhead = $3,504 Unfavorable
Fixed overhead cost variance
$
Budgeted cost 968
Actual cost 1,033
Fixed overhead cost Variance 65 unfavorable
Fixed Overhead Volume
Units
Budgeted units 2,150
Actual units 1,900
Variance 250
Standard fixed cost per unit (Notes) $0.45
Volume Variance 112.5 unfavorable
Standard fixed overhead cost per unit
= standard hours × standard Fixed overhead rate = 4.5 × $0.1= $0.45
a. variable overhead cost variance- $3,448 Unfavorable
b. variable overhead efficiency variance- $ 56 unfavorable
c. total variable overhead variance - $3,504 Unfavorable
d. fixed overhead cost variance - $65 unfavorable
e. Fixed overhead volume variance -$ 112.5 unfavorable
Michelle gives out a business card with an e-mail address on it. According to the comments that accompany the UETA, it may be reasonable to infer that Michelle has consented to
Answer:
Explanation:
transact business electronically.
You have $. You put % of your money in a stock with an expected return of %, $ in a stock with an expected return of %, and the rest in a stock with an expected return of %. What is the expected return of your portfolio?
Answer: 16.26%
Explanation:
The expected return is the weighted average of the returns of the constituent stocks in the portfolio.
Weights.
Stock A = 20%
Stock B
= 30,000/70,000
= 0.4286
Stock C
= 70,000 - 30,000 - (20% * 70,000)
= 70,000 - 30,000 - 14,000
= $26,000
= 26,000/70,000
= 0.3714
Expected return = ( 0.2 * 12%) + ( 0.4286* 15%) + ( 0.3714 * 20%)
= 0.024 + 0.06429 + 0.07428
= 0.16257
= 16.26%
Corporation has found that % of its sales in any given month are credit sales, while the remainder are cash sales. Of the credit sales, Corporation has experienced the following collection pattern: 20% received in the month of the sale 40% received in the month after the sale 24% received two months after the sale 16% of the credit sales are never received November sales for last year were , while December sales were . Projected sales for the next three months are as follows: January sales. . . . . . . . . . . . . . . . $150,000 February sales. . . . . . . . . . . . . . . $130,000 March sales. . . . . . . . . . . . . . . . . $175,000 Requirement Prepare a cash collections budget for the first quarter, with a column for each month and for the quarter. (Round your answers to the nearest whole dollar.) Sweeney Corporation Cash Collections Budget For the Months of January through March January Cash sales Collections on credit sales: 20% Month of sale 40% Month after 24% Two months after Total cash collections Enter any number in the edit fields and then click Check An
Answer:
Some information is missing, specifically the % of credit sales. Similar questions use 80%, so I will use that %. Also, November sales were $85,000 and December sales were $115,000.
Cash collections budgetJanuary February March
Cash sales $30,000 $26,000 $35,000
Collection from Nov. sales $16,320
Collection from Dec. sales $36,800 $22,080
Collection from Jan. sales $24,000 $48,000 $28,800
Collection from Feb. sales $20,800 $41,600
Collection from March sales $28,000
Total cash collections $107,120 $116,880 $133,400
Kathy and Annise are a married couple who file jointly. In the current year, they have net ordinary income of $10,000 from a partnership interest in which they do not materially participate. They also have a net loss of $30,000 from a rent house in which they actively participate. Their adjusted gross income (AGI) exclusive of these investments is $120,000. What is their AGI after taking into account these investments
Answer:
$100,000
Explanation:
As Kathy and Annise are a married couple who file jointly, their revised AGI can be calculated by deducting a net loss from the adjusted gross income.
DATA
Current AGI = $120,000
Rental loss = $30,000
Partnership gain = $10,000
Revised AGI = Current AGI - Net loss
Revised AGI = 120,000 – 20,000(w)
Revised AGI = 100,000
Working
Net loss = Rental loss – partnership gain
Net loss = $30,000 - $10,000
Net loss = $20,000
NOTE: Kathy and Annise can deduct 20,000 loss against other income as they materially participate in rental activities.
Hank purchased a $28,000 car two years ago using an 8 percent, 5-year loan. He has decided that he would sell the car now, if he could get a price that would pay off the balance of his loan. What is the minimum price Hank would need to receive for his car
Answer:
$18,117.58
Explanation:
the question requires that we find the minimum price Hank would need to receive his first car.
loan = $28,000
rate = 0.08/12 = 0.0067
the monthly payment can be calculated as:
loan /[0.0067/1-(1/(0.0067)^60))]
= 28000/[1-1/(1.0067^60)/0.0067]
= 28000/(1-(1/1.0067)^60)/0.0067
= $567.74
The minimum price can be calculated as:
pmt = 567.74 x [(1-(1/1.0067^36))/0.0067) x 0.0067
= $18,117.58
When U.S. goods become more expensive relative to foreign goods, exports will __________ and imports will __________.
Answer:
fall, rise
Explanation:
US goods will become less expensive
During the year, TRC Corporation has the following inventory transactions.
Date Transaction Number of Units Unit Cost Total Cost
Jan. 1 Beginning inventory 41 $ 33 $ 1,353
Apr. 7 Purchase 121 35 4,235
Jul. 16 Purchase 191 38 7,258
Oct. 6 Purchase 101 39 3,939
454 $16,785
For the entire year, the company sells 410 units of inventory for $51 each.
Exercise 6-4A Part 2
2. Using LIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.
Answer:
Ending Inventory = $1,716.00
Cost of Sales = $15,069.00
Sales Revenue = $20,910.00
Gross Profit = $5,841.00
Explanation:
FIFO Method assumes that the first goods received by the busines will be the first ones to be delivered to the final customer.
Ending Inventory :
Under FIFO, any remaining inventory will be valued as if they were the latest goods purchased.
Ending Inventory : 44 units × $39.00 = $1,716.00
Cost of Goods Sold Calculation :
Cost of Sales : 41 units × $33.00 = $1,353.00
121 units × $35.00 = $4,235.00
191 units × $38.00 = $7,258.00
57 units × $39.00 = $2,223.00
Total = $15,069.00
Sales Revenue Calculation ;
Sales Revenue = Units Sold × Selling Price
= 410 units × $51
= $20,910.00
Gross Profit Calculation :
Sales $20,910.00
Less Cost of Goods Sold ($15,069.00)
Gross Profit $5,841.00
Deming, the proponent of total quality management, argued that management has the responsibility to train employees in new skills.
A. True
B. False
Answer:
Its TRUE
Explanation:
Management should train employees in new skill, where Deming argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. In addition, he believed that achieving better quality requires the commitment of everyone in the company.
"The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is:"
Answer:
The answer is historical cost principle
Explanation:
Historical cost principle is a principle in which the asset and the liability are being reported at the actual money in which they were purchased. This actual amount in which they were purchased is their historical cost.
For example, a company bought a machinery five years ago for $2million and the expected life of the machinery is five years. After there years, the machine has a carrying amount of $1.2 million on the balance sheet. The historical cost of this asset is $2million.
If a bank has required reserves of $27,000,000, excess reserves of $41,000,000, and deposits of $90,000,000 with a required reserve ratio of 30 percent, how much can the bank lend out?
Answer:
$41,000,000
Explanation:
Excess reserves can be described as the amount of money that is kept by a bank. This amount of money can be given out to individuals or different organisations in the form of a loan, this is done to generate more profits as a certain amount of interest is being added to the amount of cash that will be given out.
In the scenario described above, the bank has an excess reserve of $41,000,000. Therefore, the bank will be willing to lend out $41,000,000 as loan.
Salud Company reports the following information. Use the indirect method to prepare only the operating activities section of its statement of cash flows for the year ended December 31, 2017. (Amounts to be deducted should be indicated with a minus sign.)
Selected 2017 Income Statement Data Selected Year-End 2017
Net income $455,000 Accounts receivable increase $52,800
Depreciation expense 95,500 Prepaid expenses decrease 17,400
Gain on sale of machinery 26,300 Accounts payable increase 6,200
Wages payable decrease 2,100
Answer:
Cash flow from Operating Activities
Net income $455,000
Adjustments for non-cash items :
Depreciation expense $95,500
Gain on sale of machinery ($26,300)
Adjustment for Changes in Working Capital :
Increase in Accounts receivable ($52,800)
Decrease in Prepaid expenses $17,400
Increase in Accounts payable $6,200
Decrease in Wages payable $2,100
Net Cash from Operating Activities $497,100
Explanation:
The Indirect method adjusts the Profit before tax with the following items :
Non-cash items previously added or deducted from net incomeChanges in Working CapitalTB MC Qu. 5-49 Walbin Corporation uses the weighted-average method... Walbin Corporation uses the weighted-average method in its process costing system. The beginning work in process inventory in a particular department consisted of 20,500 units, 100% complete with respect to materials cost and 30% complete with respect to conversion costs. The total cost in the beginning work in process inventory was $26,200. A total of 58,000 units were transferred out of the department during the month. The costs per equivalent unit were computed to be $2.10 for materials and $3.80 for conversion costs. The total cost of the units completed and transferred out of the department was:
Answer:
The total cost of the units completed and transferred out of the department was: $342,200.
Explanation:
First calculate the Total Cost per Equivalent unit.
Total Cost per Equivalent unit :
Materials $2.10
Conversion $3.80
Total $5.90
Total cost of the units completed and transferred out = Units completed and transferred out × Total Cost per Equivalent unit
= 58,000 units × $5.90
= $342,200
Suppose the tax rate on nominal interest income is 20% and does not change over time. Also assume the real interest rate remains constant. In year 1, the inflation rate is 4% and the nominal interest rate is 10%. In year 2, the inflation rate is 14% The real interest rate in both years is 16 The nominal interest rate in year 2 is 20 The after-tax nominal interest rate in year 1 is 7.
a. The after-tax nominal interest rate in year 2 is __________
b. The after-tax real interest rate in year 1 is ______________
c. The after-tax real interest rate in year 2 is ______________
Answer:
a. The after-tax nominal interest rate in year 2 is __________
after tax nominal interest rate = 20% x (1 - tax rate ) = 20% x 0.8 = 16%
b. The after-tax real interest rate in year 1 is ______________
after tax real interest rate = [(1 + after tax nominal interest rate) / (1 + inflation rate)] - 1
after tax nominal interest rate yer 1 = 10% x 0.8 = 8%
inflation rate = 4%
after tax real interest rate = [1.08 / 1.04] - 1 = 3.85%
c. The after-tax real interest rate in year 2 is ______________
after tax real interest rate = [(1 + after tax nominal interest rate) / (1 + inflation rate)] - 1
after tax nominal interest rate yer 1 = 16%
inflation rate = 4%
after tax real interest rate = [1.16 / 1.14] - 1 = 1.75%
Explanation:
year 1
inflation rate 4%
nominal interest rate 10%
real interest rate 6%
year 2
inflation rate 14%
nominal interest rate 20%
real interest rate 6%
Because of the legal protection for intellectual property, such as patents, a firm has a better chance of recouping the costs of research if it pursues:_________.
a. Basic technological research
b. Technologically innnovative research
c. Appllied technological research
d. Technologically positive research
Answer:
D. Technologically positive research
Explanation:
Technology positive research can be said to be a scientific method which explain elaborately on the approach that is seen to deal with research founded on the premise of the modern world is been defined by a set of regular laws or patters, and that we can investigate these laws. Generally, it is known that positivity brings open doors and also a level ground for normal discussions with even people that have spent barely few hours with a said person. This research method is also been seen as the type where theory is typically provided as a set of related variables express by some form of formal logic, proven empirically to be significant.
The difference between total sales revenue and total cost of goods sold is the: A. Trade margin B. Gross marketing contribution C. Net marketing contribution D. All of the above
Answer:
A. Trade margin
Explanation:
The profit obtained from trading operations is known as gross profit or trade margin.This is calculated as sales less costs of goods sold.
The difference between total sales revenue and total cost of goods sold is the gross marketing contribution.
The following information is considered:
When the cost of goods sold is deducted from the sales revenue so the gross marketing contribution should come. Neither it is trade margin, nor net marketing contribution.In other words, the difference is called as gross margin.Therefore we can conclude that the correct option is B.
Learn more: brainly.com/question/16115373
if N lekin's beginning capital balance shown on a statement of owner's equity is 100,000. net income for the period is
Answer:
$125,000
Explanation:
The computation of the owner's capital balance at the end of the period is shown below:-
Owner's Capital balance at the end = Capital balance in the beginning + Additional investments + Net Income - Withdrawals
= $100,000 + 0 + $50,000 - $25,000
= $125,000
Therefore for computing the owner's capital balance at the end we simply applied the above formula.
"In using the net present value approach, a project is acceptable if the project's net present value is ____________ or_______________."
Answer:
Zero or Positive.
Explanation:
The project should be accepted if the NPV (net present value) is “zero” or “positive” because the zero value means that the project will not be in loss. However, the positive value shows that the project will give profit. But if there is a negative value of net present value then it reflects that the project is giving a loss. Therefore, the project with negative NPV must be rejected. And the project that has zero net present value or positive net present value should be accepted.
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 it has a net annual after-tax cash inflow of $900,000. The CAM Y model is more expensive, selling for $4,200,000, but it will produce a net annual after-tax cash inflow of $1,050,000. The cost of capital for the company is 10%.
Required:
Calculate the NPV for each project.
Answer:
NPV of CAM X = $1,930,110.40
NPV of CAM Y = $2,251,795.46
Explanation:
The NPV for each project can be calculated using the following steps:
Step 1: Calculation of present value (PV) for each project
The PV for each project can be calculated using the formula for calculating the present value of an ordinary annuity as follows:
PV of a project = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)
Where;
For CAM X
P = Net annual after-tax cash inflow = $900,000
r = Cost of capital or interest rate = 10%, or 0.10
n = number of project life = 10
Substitute the values into equation (1) to have:
PV of CAM X = $900,000 * [{1 - [1 / (1 + 0.10)]^10} / 0.10]
PV of CAM X = $900,000 * 6.14456710570468
PV of CAM X = $5,530,110.40
For CAM Y
P = Net annual after-tax cash inflow = $1,050,000
r = Cost of capital or interest rate = 10%, or 0.10
n = number of project life = 10
Substitute the values into equation (1) to have:
PV of CAM Y = $1,050,000 * [{1 - [1 / (1 + 0.10)]^10} / 0.10]
PV of CAM Y = $1,050,000 * 6.14456710570468
PV of CAM Y = $6,451,795.46
Step 2: Calculation of net present value (NPV) for each project
The NPV for each project can be calculated using the following formula:
NPV of each project = PV of each equipment - Purchase price of each equipment ........ (2)
Using equation (2), we have:
NPV of CAM X = PV of CAM X - Purchase price of CAM X = $5,530,110.40 - $3,600,000 = $1,930,110.40
NPV of CAM Y = PV of CAM Y - Purchase price of CAM Y = $6,451,795.46 - $4,200,000 = $2,251,795.46
Additional Note:
Although this not part of the requirement of the question, but note that the final decision is that since the positive NPV of $2,251,795.46 for CAM Y is gereater than the positive NPV of $1,930,110.40 for CAM X, Hunt Inc. will choose to invest in CAM Y.
World Class Rings produces class rings. Its best-selling model has a direct materials standard of 16 grams of a special alloy per ring. This special alloy has a standard cost of $63.30 per gram. In the past month, the company purchased 16,800 grams of this alloy at a total cost of $1,061,760. A total of 16,300 grams were used last month to produce 1,000 rings.
Requirements:
1. What is the actual cost per gram of the special alloy that World Class Rings purchased last month? (Round your answer to the nearest cent.) The actual cost per gram of the special alloy that World Class Rings purchased last month is $_____.
2. What is the direct material price variance? (Abbreviations used: DM = Direct materials) Begin by determining the formula for the price variance, then compute the price variance for direct materials.
3.·What is the direct material quantity variance? (Abbreviations used: DM = Direct materials) Determine the formula for the quantity variance, then compute the quantity variance for direct materials.
4. How might the direct material price variance for the company last month be causing the direct material quantity variance?
The_____direct material price variance might mean that World Class Rings purchased a______. As a result, the company______quantity (efficiency) variance alloy than the standard allows. This accounts for the_____quantity (efficiency) variance.
Answer:
1. What is the actual cost per gram of the special alloy that World Class Rings purchased last month? (Round your answer to the nearest cent.) The actual cost per gram of the special alloy that World Class Rings purchased last month is $_____.
= $1,061,760 / 16,800 grams = $63.20 per gram
2. What is the direct material price variance? (Abbreviations used: DM = Direct materials) Begin by determining the formula for the price variance, then compute the price variance for direct materials.
direct materials price variance = (AP - SP) x AQ = ($63.20 - $63.30) x 16,300 = -$1,630 favorable variance
3.·What is the direct material quantity variance? (Abbreviations used: DM = Direct materials) Determine the formula for the quantity variance, then compute the quantity variance for direct materials.
direct materials quantity variance = SP x (AQ - SQ) = $63.30 x (16,300 - 16,000) = $18,990 unfavorable variance
4. How might the direct material price variance for the company last month be causing the direct material quantity variance?
The FAVORABLE direct material price variance might mean that World Class Rings purchased a LOWER QUALITY MATERIAL. As a result, the company USED MORE ALLOW THAN STANDARD quantity (efficiency) variance alloy than the standard allows. This accounts for the UNFAVORABLE quantity (efficiency) variance.
