Name 2 of the 4 structures a business can have

Answers

Answer 1

Answer:

4 Types of Legal Structures for Business:

   Sole Proprietorship.    General Partnership.    Limited Liability Company (LLC)    Corporations (C-Corp and S-Corp)


Related Questions

Calculate the total Social Security and Medicare tax burden on a sole proprietorship earning 2020 profit of $300,000, assuming a single sole proprietor with no other earned income.

Answers

Answer: $25,802.70

Explanation:

Social security

Social security rates in 2020 for a single sole proprietor is 12.40% on the first $137,700:

= 12.40% * 300,000

= $17,074.80

Medicare Tax

First you need to remove a deduction of 7.65% from the income:

= 300,000 * (1 - 7.65%)

= $277,050

Medicare tax is 2.90% of this adjusted amount in addition to 0.9% for any amount above $200,000:

= (2.90% * 277,050) + (0.9% * (277,050 - 200,000))

= 8,034.45 + 693.45

= $8,727.90

Total Social security and Medicare:

= 17,074.80 + 8,727.9

= $25,802.70

A strategy of related diversification requires most firms to organize around geographical areas or product lines. This type of organizational growth leads to a(n) ________ structure.

Answers

It leads to Divisional Structure.

TB MC Qu. 08-156 Fortune Drilling Company acquires... Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. What journal entry would be needed to record the expense for the first year assuming 418,000 tons were mined

Answers

Answer:

Fortune Drilling Company

Journal Entry:

Debit Depletion Expense $1,350,000

Credit Accumulated Depletion $1,350,000

To record the first year's expense.

Explanation:

a) Data and Calculations:

Acquisition cost of mineral deposit = $5,900,000

Additional costs incurred = $600,000

Total costs of mine = $6,500,000

Estimated mineral deposit = 2,000,000 tons

Estimated years of extraction = 5 years

First year's extraction quantity = 418,000

Expenses for the first year = 418,000/2,000,000 * $6,500,000

= $1,350,000

Analysis:

Depletion Expense $1,350,000 Accumulated Depletion $1,350,000

To meet projected annual sales, Bluegill Manufacturers, Inc. needs to produce 75,000 machines for the year. The estimated January 1 inventory is 7,000 units, and the desired December 31 inventory is 12,000 units. What are projected sales units for the year? fill in the blank 1 units

Answers

Answer: 70,000 units

Explanation:

You can use the formula for the ending inventory to get this:

Ending inventory = Opening inventory + Production for the year - Projected sales

12,000 = 7,000 + 75,000 - Projected sales

12,000 + Projected sales = 82,000

Projected sales = 82,000 - 12,000

Projected sales = 70,000 units

A company must repay the bank $10,000 cash in three years for a loan. The loan agreement specifies 8% interest compounded annually. The present value factor for three years at 8% is 0.7938. How much cash did the company receive from the bank on the day they borrowed this money?
A. $12,400.
B. $9,200.
C. $7,938.
D. $7,600.
E. $10,000.

Answers

Answer: C. $7,938

Explanation:

This is a straightforward question. From the question, we are informed that a company must repay the bank $10,000 cash in three years for a loan and that the loan agreement specifies 8% interest compounded annually and we are given the present value factor for three years at 8% is 0.7938.

Therefore, the amount of cash that the company receive from the bank on the day they borrowed this money will be:

= $10000 × Present value factor at 8%

= $10000 × 0.7938

= $7938

Year 2 Year 1 Sales $86,060 $74,200 Total assets at the end of the year 63,800 68,600 Total assets at the beginning of the year 68,600 79,800 a. Determine the asset turnover for The ABC Depot for Year 2 and Year 1. Round to one decimal place.

Answers

Answer:

a. We have:

Year 2 asset turnover = 1.3 times

Year 1 asset turnover = 1.0 time

b. Since asset turnover of the ABC Depot increases from 1.0 time in Year 1 to 1.3 times in Year 2, these turnover therefore indicate that the ability of The ABC Depot to use its assets to generate sales more effectively has increased/improved.

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

The ABC Depot reported the following data (in millions) in its recent financial statements:

                                                                               Year 2            Year 1

Sales                                                                    $86,060        $74,200

Total assets at the end of the year                      63,800          68,600

Total assets at the beginning of the year           68,600          79,800

a. Determine the asset turnover for The ABC Depot for Year 2 and Year 1. Round to one decimal place.

b.  What do these turnover indicate concerning the trend in the ability of The ABC Depot to effectively use its assets to generate sales?

The explanation of the answers is now provided as follows:

a. Determine the asset turnover for The ABC Depot for Year 2 and Year 1. Round to one decimal place.

The asset turnover can be calculated using the following formula:

Asset turnover = Sales / Average total assets ………………… (1)

Where:

Average total assets = (Total assets at the beginning of the year + Total assets at the end of the year) / 2

Using equation (1), we therefore have:

Year 2 asset turnover = $86,060 / (($68,600 + $63,800) / 2) = 1.3 times

Year 1 asset turnover = $74,200 / (($79,800 +$ 68,600) / 2) = 1.0 time

b.  What do these turnover indicate concerning the trend in the ability of The ABC Depot to effectively use its assets to generate sales?

A higher asset turnover indicates that a company is using its assets to generate sales more effectively.

Since asset turnover of the ABC Depot increases from 1.0 time in Year 1 to 1.3 times in Year 2, these turnover therefore indicate that the ability of The ABC Depot to use its assets to generate sales more effectively has increased/improved.

Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.
Cost of goods sold……………………………….. $ 735,000
Merchandise inventory, January 1………………. 84,700
Merchandise inventory, December 31…………… 82,400
Accounts payable, January 1……………………. 54,500
Accounts payable, December 31……………….. 60,200

Answers

Answer:

$727,000

Explanation:

Calculation of cash paid for merchandise

Cost of goods sold

$735,000

Add:

Merchandise inventory, December 31

$82,400

Less:

Merchandise inventory, January 1

($84,700)

Purchases during the period

$732,700

Add:

Accounts payable, January 1

$54,500

Less:

Accounts payable, December 31

($60,200)

Cash paid for merchandise

$727,000

Budgeted Actual Overhead cost $909,000 $884,000 Machine hours 55,000 46,000 Direct labor hours 101,000 98,000 Overhead is applied on the basis of direct labor hours. (a) Compute the predetermined overhead rate. (Round answer to 2 decimal places, e.g. 12.25.)

Answers

Answer:

Missing word "(b) Determine the amount of overhead applied for the year?"

1. Predetermined overhead rate = Budgeted overhead / Budgeted direct labor hours

Predetermined overhead rate = $909,000 / 101,000

Predetermined overhead rate = $9 per DLH

2. Overhead applied = Actual hours * Overhead rate

Overhead applied = 98,000 * $9 per DLH

Overhead applied = $882,000

direct operating margin may be used to determine departmental?

Answers

Answer:

can be dhkfgjhhhhddrreerrtyuuuuu7u77tt7ui

You made an investment of $15,000 into an account that paid you an annual interest rate of 3.8 percent for the first 8 years and 8.2 percent for the next 10 years. What was your annual rate of return over the entire 18 years

Answers

Answer: 6.22%

Explanation:

To find the annual rate of return, find the geometric mean of the returns:

= ¹⁸√ (1 + 3.8%)⁸ * (1 + 8.2%)¹⁰ - 1

= ¹⁸√ 2.9638173484126186153 - 1

= 1.0622187633434 - 1

= 6.22%

The accounting records of Jamaican Importers, Inc., at January 1, 2021, included the following: Assets: Investment in IBM common shares $ 1,345,000 Less: Fair value adjustment (145,000) $ 1,200,000 No changes occurred during 2021 in the investment portfolio.
Prepare appropriate adjusting entry(s) at December 31, 2021, assuming the fair value of the IBM common shares was:_____.
1, $ 1,175,000
2, $ 1,275,000
3, $ 1,375,00

Answers

Answer: See explanation

Explanation:

The appropriate adjusting entry(s) at December 31, 2021, given the fair value of the IBM common shares are represented below:

1. 31, December 2021

Dr Unrealized holding gain or loss - NI $25,000

Cr To Fair value adjustment $25,000

(To record adjustment to fair value)

2. 31, December 2021

Dr Fair value adjustment $75,000

Cr To Unrealized holding gain or loss - NI $75,000

(To record adjustment to fair value)

3. 31, December 2021

Dr Fair value adjustment $175,000

Cr To Unrealized holding gain or loss - NI $175,000

(To record adjustment to fair value)

Bob has saved $30 per week to buy a new Blu-ray player. He compares two different models: a Panaview that is priced at $130 and a Zony model that is priced at $140. Bob decides to purchase the Zony Blu-ray player for $140. Identify what role money plays in each of the following parts of the story.

a. Sean can easily determine that the Panaview model has a lower price than the Zony model.
b. Sean saved $30 per week.
c. Sean pays $140 for the Blu-ray player.

Answers

Answer and Explanation:

The categorization is as follows:

a. It is a unit of account as it determined the panaview model along with the zony model plus the comparison is also there

b. It is the store of value because the saving should be the similar value over the time

c. It is the medium of exchange as he has purchased the player where the money is exchanged with the product

In this way it should be categorized    

Janice has been invited to appear on a home improvement show for the remodel of her summerhouse in Maine. Janice asks Mary to wallpaper her house in anticipation of the home improvement, and requests expensive custom wallpaper and a very intricate design application, for which the wallpaper would cost $5000, plus labor. Mary, excited for a very large job for her solo business, orders the intricate wallpaper and blocks off her calendar for the amount of time it will take to complete the job. After the paper has been ordered, Mary asks some friends to be available to complete the job in time for the show. Janice is informed that she will not be on the show and notifies Mary that she will not need the wallpaper.
a. Does Mary have a case for re-imbursement?
b. Under what legal theory might she prevail and what are her damages, if any?
c. What ethical theories might be applicable?

Answers

Answer:

sorry I don't know.

Explanation:

Yes, Mary has a legal cause of reimbursement Under the legal theory of ethical violation.

What is ethical violation?

A documented company's code of ethics, mission, vision, values, and culture are violated when something is spoken, published, or done that does so. Additionally, we are aware that moral transgressions laugh in the face of accepted social norms.

Most business professionals' ethical conduct is governed by codes of conduct. Business infractions including discrimination, safety issues, or poor working conditions are most frequently observed.

Additionally, fraud, theft, and conflicts of interest. Many of these cross the line into illegal territory that is dealt with outside the corporation and are not merely morally bad.

Customers may be charged for services they did not receive when there is improper or fraudulent billing. This occurs most frequently in professions where the person who pays the bill is different from the person who received the services.

Due to the frequency of this particular ethical breach, many insurance companies have started providing consumers with a list of services that may fall under this category, enticing them to report any irregularities.

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Stock Z is trading at $50 today. In one year, the value will go either up to $62.50 or down to $40. A call option on Z with exactly one year to expiration has a strike price of $55. Inflation is high, so the interest rate is 10% per year. Find the delta of the call option using binomial approach. a. 0.25 b. 0.67 c. 1.05 d. 0.33

Answers

Answer:

0.33

Explanation:

Delta = (Cu – Cd)/(Su – Sd)Cu

= 62.50 – 55 = 7.50

Cd = 0

Delta = (7.50 – 0)/(62.50 – 40)

= 0.33

In the process of conversion from the equity method to the fair value method, the earnings or losses that the investor previously recognized under the equity method should

Answers

Answer: remain as a part of the carrying amount of the investment

Explanation:

Equity method is simply the process whereby investments are treated in associate companies. It usually occurs when the investor entity holds about twenty to fifty percent of the voting stock of the other company.

It should be noted that in a process of conversion from the equity method to the fair value method, the earnings or losses that the investor previously recognized under the equity method should remain as a part of the carrying amount of the investment.

The Chiemsee Knee Replacement Clinic (CKRC) is a sports clinic located at the northern edge of the German Alps. It specializes in knee replacements for skiers who come to CKRC from Germany, Austria, Switzerland, and Italy. The clinic currently has one operating room (OR). However, since the clinic has dramatically more demand than capacity, the management team contemplates investing in a second OR. A lean consulting firm, however, suggests that before going ahead with installing new capacity, the clinic should first look at how it uses its existing capacity. The data collected by the consulting firm reveal that:

The OR is available for 12 hours a day; the hospital has decided to not perform any procedures between 7pm and 7am. This time is equally divided across three surgeons.
The standard procedure time for the knee surgery done at the clinic is 1h.
The cleaning and housekeeping that needs to happen after each procedure takes 20 minutes. Almost all of this time could be saved if the cleaning crew were notified earlier on.
10 minutes are spent on patient preparation / anesthesia work before each procedure. (Note: this is not part of the 60-minute procedure time). Proposals have been evaluated to move these 10 minutes to outside the OR, and there exists no medical reason that would prohibit doing this.)
A surgeon only starts a case if all of the work associated with the case (preparation, procedure, and cleaning) can be completed in the 4h allotted to each surgeon. Surgeons never start BEFORE their allotted time.
Though the clinic aims to operate 7 days a week, holidays, vacation, and construction time lead to an average of one day a week that the OR cannot be used at all.
What is the OEE of the operating room? Assume a 12h window in which the OR could be used.

Answers

The OEE of the Operating Room is 34.8%.

Operating Room Overall Equipment Effectiveness

To calculate the OEE (Overall Equipment Effectiveness) of the OR, you need to consider three factors: availability, performance, and quality.

Availability: The OR is available for 12 hours a day, but there is a 1 hour window between 7pm and 7am when it is not used. Additionally, there is an average of one day a week when the OR cannot be used at all. Therefore, the availability is:

(12 hours - 1 hour) / 12 hours * 7 days/week - 1 day/week = 0.92 or 92%

Performance: The standard procedure time for the knee surgery is 1 hour, and 10 minutes are spent on patient preparation and anesthesia work. The cleaning and housekeeping takes 20 minutes, and a surgeon only starts a case if all of the work can be completed in the 4 hours allotted to each surgeon. Therefore, the performance is:

1 hour + 10 minutes + 20 minutes = 1 hour and 30 minutes / 4 hours = 0.375 or 37.5%

Quality: Quality is not mentioned in the data provided, so it is assumed to be 100%.

To calculate OEE, you need to multiply availability, performance, and quality:

OEE = availability * performance * quality = 0.92 * 0.375 * 1 = 0.348 or 34.8%

So, the OEE of the OR is 34.8%.

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An overhead variance report includes which of the followings: _________

a. Variable and fixed flexible budget costs
b. Variable and fixed actual results
c. Variable and fixed sales results
d. Variable and fixed variances

Answers

Answer: a. Variable and fixed flexible budget costs

Explanation:

An overhead variance report shows the difference between the overhead that was actually incurred to either produce or sell vs the overhead that was budgeted.

Overhead can either be fixed or variable so an overhead report will include both fixed and variable budgeted costs which will then be compared to fixed and variable actual overhead costs.

Have you ever financed anything on a short term or long term arrangement? ​

Answers

Answer:

Financing is a very important part of every business. Firms often need financing to pay for their assets, equipment, and other important items. Financing can be either long-term or short-term. As is obvious, long-term financing is more expensive as compared to short-term financing.

There are different vehicles through which long-term and short-term financing is made available. This chapter deals with the major vehicles of both types of financing.

Explanation:

Long-Term Financing

Long-term financing is usually needed for acquiring new equipment, R&D, cash flow enhancement, and company expansion. Some of the major methods for long-term financing are discussed below.

Equity Financing

Equity financing includes preferred stocks and common stocks. This method is less risky in respect to cash flow commitments. However, equity financing often results in dissolution of share ownership and it also decreases earnings.

The cost associated with equity is generally higher than the cost associated with debt, which is again a deductible expense. Therefore, equity financing can also result in an enhanced hurdle rate that may cancel any reduction in the cash flow risk.

Corporate Bond

A corporate bond is a special kind of bond issued by any corporation to collect money effectively in an aim to expand its business. This tern is usually used for long-term debt instruments that generally have a maturity date after one year after their issue date at the minimum.

Short-Term Financing

Short-term financing with a time duration of up to one year is used to help corporations increase inventory orders, payrolls, and daily supplies. Short-term financing can be done using the following financial instruments −

Commercial Paper

Commercial Paper is an unsecured promissory note with a pre-noted maturity time of 1 to 364 days in the global money market. Originally, it is issued by large corporations to raise money to meet the short-term debt obligations.

It is backed by the bank that issues it or by the corporation that promises to pay the face value on maturity. Firms with excellent credit ratings can sell their commercial papers at a good price.

Asset-backed commercial paper (ABCP) is collateralized by other financial assets. ABCP is a very short-term instrument with 1 and 180 days’ maturity from issuance. ACBCP is typically issued by a bank or other financial institution.

Promissory Note

It is a negotiable instrument where the maker or issuer makes an issue-less promise in writing to pay back a pre-decided sum of money to the payee at a fixed maturity date or on demand of the payee, under specific terms.

ctivity-Based Costing (ABC) is useful in: Select one: A. Breakdown COGS into DL, DM, and FOH B. Breaking down FOH more accurately into cost drivers C. Breaking down FOH into one overhead rate D. Breaking down DL and DM by product

Answers

Answer:

B. Breaking down FOH more accurately into cost drivers

Explanation:

In the case of activity based costing, the activity of the fixed cost should be breakdown based on the number of activity pools while the fixed cost should be breakdown as per the cost drivers. Also, there is more than one overhead rate existed. In addition to this, it is the method for distribution of the overhead with those firms who is able to used it

Therefore the option b is correct

As project manager, Gabriella has discovered a major problem that could affect the remainder of the project.
What should she do before deciding how to resolve the problem?

Answers

Answer:

Develop a problem statement for the problem

Develop a problem statement for the problem she should do before deciding how to resolve the problem.

What is project manager?

A project manager is in charge of the project's planning, acquisition, implementation, and conclusion. The project manager is in charge of the entire undertaking and manages every aspect of it, including the project scope, the project team, and the resources allotted to it.

At least three years of experience in a comparable capacity, communication skills, formal training, and a PMP certification are typically needed. A professional association, a university or college, or an online learning program with a narrow concentration are all options for obtaining certification.

One of the most difficult occupations is project management since no day is ever the same and you must use all of your project management abilities to address every issue.

Thus, Develop a problem statement for the problem.

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Where do you see Dow Jones in the coming two years ?

Answers

Dow jones the business, is that what you or asking sorry just want to make sure so i answer the question correctly

Suppose that the tax on interest income is levied on the nominal interest​ rate, the tax rate is 20 ​percent, and the real interest rate is 4 percent a year. There is no inflation.
Calculate the​ after-tax real interest rate and the true tax rate on interest income.

Answers

Answer:

After-tax interest rate ⇒ 3.2%True tax on interest income ⇒ 20%

Explanation:

After-tax real interest rate:

= Real interest rate * (1 - tax rate)

= 4% * (1 - 20%)

= 4% * 80%

= 3.2%

True tax on interest income:

= 20%

True tax on interest income is the tax rate levied on the nominal interest rate which is 20%.

Welcome Inn Hotels is considering the construction of a new hotel for $90 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $26 million per year. Total expenses, including depreciation, are expected to be $15 million per year. Welcome Inn management has set a minimum acceptable rate of return of 14%.
a. Determine the equal annual net cash flows from operating the hotel.
b. Calculate the net present value of the new hotel. Use 7.003 for the present value of an annuity of $1 at 14% for 30 periods.
c. Does your analysis support construction of the new hotel?

Answers

Answer:

a. Annual Net cash flows:

= Revenue - Expenses + Depreciation

= 26,000,000 - 15,000,000 + (90,000,000 / 30 years)

= 11,000,000 + 3,000,000

= $14,000,000

b. Net present value:

= Present value of cashflows - Investment cost

= (Annual cashflow * present value of an annuity, 14%, 30 periods) - Investment cost

= (14,000,000 * 7.003) - 90,000,000

= $8,042,000

c. Company should construct the hotel as it would bring a positive Net Present Value

Note: In "b" the cashflow was treated as an annuity because it is constant.

changing nature of the environment and adaptation to the changes are crucial factors of successful planning. discuss

Answers

Explanation:

societies (robust evidence, high agreement). The combined efforts of a broad range of international organizations, scientific reports, and

media coverage have raised awareness of the importance of adaptation to climate change, fostering a growing number of adaptation responses

in developed and developing countries. This represents major progress since the IPCC Fourth Assessment Report (AR4). The literature illustrates

heterogeneity in adaptation planning related to the context specific nature of adaptation, but also to the differences in resources, values,

needs, and perceptions among and within societies. However, it is not yet clear how effective these responses currently are and will be in the

future. Few adaptation plans have been monitored and evaluated. There is a tendency in the literature to consider adaptation planning a problem-

free process capable of delivering positive outcomes, underestimating the complexity of adaptation as a social process, creating unrealistic

expectations in societies, and perhaps overestimating the capacity of planning to deliver the intended outcome of adapt

Department M had 2,000 units 56% completed in process at the beginning of June, 13,500 units completed during June, and 1,000 units 28% completed at the end of June. What was the number of equivalent units of production for conversion costs for June if the first-in, first-out method is used to cost inventories? a.14,780 units b.13,780 units c.12,660 units d.11,500 units

Answers

Answer:

c.12,660 units

Explanation:

Calculation to determine What was the number of equivalent units of production for conversion costs for June if the first-in, first-out method is used to cost inventories

Using this formula

EUP (FIFO) = Completed Units + Ending units - Beginning units

Let plug in the formula

EUP (FIFO)=13,500 +( 1,000 x 28%)- (2,000 x 56%)

EUP (FIFO)= 13,500+280-$1120

EUP (FIFO)=12,660 units

Therefore the number of equivalent units of production for conversion costs for June if the first-in, first-out method is used to cost inventories is 12,660 units

information of samriyan enterprises is given below.a)Started bussiness with Rs 20000 b) purchase good of Rs 15000 from Ram.c)Goods sold on cash Rs 18000 d)Cash paid Ram Rs 10000 e)A gain goods purchase from Ram of rs 20000 f) Paid to Ram Rs 24000 in full settlement of his account.Required a) journal entries​

Answers

Answer:

a) Dr: Cash 20000

Cr: Equity/Capital 20000

b) Dr: Goods 15000

Cr: Payable 15000

c) Dr: Cash 18000

Cr: Sales 18000

d) Dr: Payable 10000

Cr: Cash 10000

e) Dr: Goods 20000

Cr: Payable 20000

f) Dr: Payable 30000

Cr: Cash 24000

Cr: Profit and Loss 6000

Dextra Computing sells merchandise for $16,000 cash on September 30 (cost of merchandise is $11,200). Dextra collects 9% sales tax. Record the entry for the $16,000 sale and its sales tax. Also record the entry that shows Dextra sending the sales tax on this sale to the government on October 15.

Answers

Answer:

See journal entries under the explanation below:

Explanation:

The journal entries will look as follows:

                                           Dextra Computing

                                             Journal Entries

Date          Particulars                                             Debit ($)      Credit ($)  

Sep 30     Cash                                                         17.440

                  Sales                                                                            16,000

                  Sales Taxes Payable ($16,000 * 9%)                           1,440

                 (To record the cash sale and 9% sales tax)                              

                 Cost of Goods Sold                                 11,200

                   Merchandise Inventory                                              11,200

                 (To record the cost of sales.)                                                    

Oct 15       Sales Taxes Payable ($16,000 * 9%)        1,440

                   Cash                                                                             1,440

                 (To record sending sales tax to the government.)                  

The formula to determine the materials to be purchased is Multiple choice question. (budgeted production times materials required for each unit) plus budgeted ending materials inventory minus beginning materials inventory (budgeted production divided by materials required for each unit) plus budgeted ending materials inventory minus beginning materials inventory (budgeted production times materials required for each unit) minus budgeted ending materials inventory plus beginning materials inventory (budgeted production divided by materials required for each unit) minus budgeted ending materials inventory plus beginning materials inventory

Answers

Answer: (budgeted production times materials required for each unit) plus budgeted ending materials inventory minus beginning materials inventory.

Explanation:

On January 1, Baker Co. purchased equipment for $100,000. It has an estimated useful life of five years and its residual value is $10,000. The company has a calendar year-end. Using the straight-line method, depreciation expense for the first year of its life equals:

Answers

Answer:

Explanation:

No dia do meu aniversário caraaaa

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $220,000 and sell its old low-pressure glueball, which is fully depreciated, for $40,000. The new equipment has a 10-year useful life and will save $48,000 a year in expenses. The opportunity cost of capital is 10%, and the firm’s tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answers

EQUIVALENT ANNUAL SAVING:

"the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately is $13,245.99".

Since they are  purchasing the new machine by first disposing off the old machine.

Hence,

First step is to Determine the Net initial investment

Net initial investment = $220,000 - $40,000

Net initial investment= $180,000

Second step is to determine the Total savings

Depreciation = $220,000/10

Depreciation = $22,000

Savings before tax = $48,000 - $22,000

Savings before tax= $26,000

Tax at 21% = (21%*$26,000)

Tax at 21% =$5,460

Savings after tax  $20,540

($26,000-$5,460)

Add back depreciation $22,000

Cash flow after tax $42,540

($20,540+$22,000)

Third step is to determine PV of CFAT and NPV

PV of CFAT = $42,540 x (10%, PVFA10Y)

PV of CFAT = $42,540 x 6.1446

PV of CFAT = $261,391

NPV = $261,391 - $180,000 = $81,391

Now let determine the EQUIVALENT ANNUAL SAVING(EAS)

Equivalent annual saving(EAS) = NPV/(10%, PVFA10Y)

Equivalent annual saving(EAS)= $81,391/6.1446

Equivalent annual saving(EAS)= $13,245.99

Therefore the EQUIVALENT ANNUAL SAVING from the purchase if Gluon can depreciate 100% of the investment immediately is $13,245.99

Learn more about EQUIVALENT ANNUAL SAVING here:

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