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Free_Kalibri [48]

3 years ago

6

When a business is considering whether to replace old equipment with newer equipment, the cost of operating the old equipment-co

mpared to the cost of operating the new equipment-is information relevant to the business decision.
a. True.
b. False.

1 answer:

vekshin13 years ago

8 0

Yes its true statement

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A firm considers to buy a machine in 2020. The cost of that machine is $ 5 000 000. The firm uses 5 year straight line depreciat

Kryger [21]

Answer and Explanation:

The computation of the free cash flow of the investment for the year 2020 and 2021 is shown below:

Particulars Case 1 Case 2

Without Investment With Investment

Add: Earnings Before

Interest and

Tax × (1 - Tax Rate) $2,000,000 $2,500,000

Add: Non Cash Expenses $0 $1,000,000

less: Change in

(Current Assets

- Current Liabilities) ($400,000) ($650,000)

Less: Capital Expenditure $0 ($5,000,000)

Free Cash Flows $1,600,000 ($2,150,000)

Working notes:

1.

Particulars Without Investment With Investment

Revenue for the Year 2021 $6,000,000 $9,000,000

Less: Cost of Goods Sold $4,000,000 $5,500,000

(-) Depreciation $0 $1,000,000

Earnings Before

Interest and Tax $2,000,000 $2,500,000

Tax Savings on Depreciation

(Depreciation × 20%) $0 $200,000

2.

Current Assets Without Investment With Investment

Inventories $300,000 $500,000

Accounts Receivable $200,000 $300,000

Total $500,000 $800,000

(Less: Current Liabilities)

Accounts Payable $100,000 $150,000

Less: Change in

(Current Assets

- Current Liabilities) $400,000 $650,000

8 0

3 years ago

Kennedy Enterprises has budgeted sales for the months of September and October at $ 110 comma 000 and $ 170 comma 000, respecti

Andru [333]

Answer:

The answer is $137,600

Explanation:

Budgeted sales for September = $110,000

Budgeted sales for October = $170,000

Credit sales for September:

0.6 x $110,000

$66,000

90% will be collected the following month (October)

0.9 x $66,000

=$59,400.

Credit sales for October:

0.6 x $170,000

$102,000

10% will be collected the same month (October)

0.1 x $102,000

=$10,200

Cash sales in October

0.4 x $170,000

$68,000

The total October cash collections from customers is

$59,400 + $10,200 + $68,000

= $137,600

7 0

3 years ago

Richardson motors uses 10 units of part no. t305 each month in the production of large diesel engines. the cost to manufacture o

Vera_Pavlovna [14]

Answer:

Richardson's opportunity cost is $8,000

Explanation:

If Richardson motors manufacture t305 themselves the total manufacturing cost per unit is $42,400.

Overhead of $24,000 is 1/3 variable and 2/3 of fixed, that means $16,000 of that would continue.

Therefore the avoidable variable manufacturing cost per unit is $24,000+$2000+$400= $26,400.

But, if Richardson Motors decides to buy the t305 from Simpson Castings then the per unit variable cost will be $36,000 ($30,000 purchase price + $6,000 material handling cost applied {i.e 20% X $30,000 per unit}).

Therefore, if they buy from Simpson Castings the per unit cost of the t305 component will no longer be the same. There will be an increase

I.e $36,000-$26,400=$9,600

If they buy 10 units per month, the total cost per month would increase by $9,600 X 10 =$96000.

If Richardson Motors happens to use the idle capacity to manufacture another product that would contribute $104,000 per month, then the opportunity cost would be:

$104,000 - $96,000 = $8,000

7 0

3 years ago

The Lunch Counter is expanding and expects operating cash flows of $32,500 a year for seven years as a result. This expansion re

storchak [24]

Answer:

$109,688.89

Explanation:

According to the scenario, computation of given data are as follows,

Formula for Net present value are as follows,

NPV = -Investment in fixed asset - Net working Capital + Operating cashflow × ( 1 - $(1+r)^{-n}$ ) ÷ r + Net working capital × $(1+r)^{-n}$

Where, r = rate of return

n = number of years

By putting the value, we get

NPV = -28,000 - 2,800 + 32,500 × ( 1 - $(1+0.14)^{-7}$ ) ÷ 0.14 + 2,800 × $(1+0.14)^{-7}$

By solving the above equation, we get

NPV = $109,688.89

8 0

3 years ago

A reduction in U.S net exports would shift U.S. aggregate demand a. leftward. In an attempt to stabilize the economy, the govern

dimulka [17.4K]

Answer:

A reduction in U.S net exports would shift U.S. aggregate demand goes d. leftward. In an attempt to stabilize the economy, the government could decrease expenditures.

Explanation:

Decrease in net exports shifts the AD curve leftward and to stabilize the economy government should cut taxes.

8 0

3 years ago