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skelet666 [1.2K]
3 years ago
13

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 $487,000 cost with an expected four-year life and a $23,000 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:
Expected annual sales of new product $1,910,000
Expected annual costs of new product:
Direct materials 495,000
Direct labor 674,000
Overhead (excluding straight-line depreciation on new machine) 335,000
Selling and administrative expenses 159,000
Income taxes 38%
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 cash flows occur evenly throughout each year.
4. Compute this machine's accounting rate of return, assuming income is earned evenly throughout each year.
5. Compute net present value, using a discount rate of 6% and that assuming that cash flows occur at each year-end.
Business
1 answer:
irina1246 [14]3 years ago
4 0

Answer:

1. $116,000

2. Net Income = $81,220 and Net Cash flow = $247,000

3. The payback period is 1 year and 11 months .

4. 31.85 %

5. $368,881.09

Explanation:

Straight Line Method charges a fixed amount of depreciation expense over the life of an asset.

Depreciation Expense = (Cost - Residual Value) / Estimated Useful Life

                                     = ($487,000 -  $23,000) / 4

                                     = $116,000

Net Income = Sales - Expenses

Sales                                                          $1,910,000

Less Expenses :

Direct materials                                         ($495,000)

Direct labor                                                ($674,000)

Overhead ( $335,000 + $116,000)           ($451,000)

Selling and administrative expenses       ($159,000)

Operating Income before tax                     $131,000

Income tax at 38%                                       ($49,780)

Net Income                                                   $81,220

Net Cash Flow Calculation :

Operating Income before tax                     $131,000

Add Depreciation Expense                        $116,000

Net Cash flow                                             $247,000

Payback period

Payback period = Year 1 + Year 2

        $487,000  =  $247,000 + $240,000 /   $247,000 × 12

                          =  1 year, 11 months

Therefore, the payback period is 1 year and 11 months .

Accounting Rate of Return = Average Profits / Average Investment  × 100

Where, Average Profits = Sum of Profits ÷ Number of Years

                                       = ($81,220 × 4) ÷ 4

                                       = $81,220

and Average Investment = (Initial Investment + Scrape Value) ÷ 2

                                         = ($487,000 + $23,000) ÷ 2

                                         = $255,000

Therefore, Accounting Rate of Return = $81,220 / $255,000 × 100

                                                               = 31.85 %

NET PRESENT VALUE (NPV)

Calculation of NPV of Project A using a Financial Calculator :

($487,000) Cfj

$247,000     Cfj

$247,000       Cfj

$247,000       Cfj

$247,000       Cfj

6                I/Yr

Shift NPV   $368,881.09

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3 years ago
Countess Corp. is expected to pay an annual dividend of $4.57 on its common stock in one year. The current stock price is $73.59
Serjik [45]

Answer:

The cost of equity is 9.91%

Explanation:

The constant growth model of the DDM is used to calculate the price of the share or the fair value per share based on a constant growth in dividends and the required rate of return which is also known as cost of equity.

Plugging in the available values in the formual we can calculate the cost of equity or the required rate of return.

73.59 = 4.57 / (r - 0.037)

73.59 * (r - 0.037) = 4.57

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3 0
3 years ago
Read 2 more answers
On November 26, Joe wrote to Kate offering to purchase a farm that she owned. Upon receiving the letter on November 28, Kate imm
slega [8]

Answer:

No, a contract has not been form because the offer has been revoked

Explanation:

an offers can be terminated if there is rejection of offer by the offeree. an offer can be revoked before its has been accepted. Since the revocation is made known to Joe before the letter of acceptance reach joe. No contract has been form.

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4 0
3 years ago
Transactions Units Amount
mario62 [17]

Answer:

a) Cost of Goods Sold under each method of inventory:

1) Average Cost:

Beginning Inventory  600 units   $1,800

Purchases: January 12, 580 units 2,900

Purchases: January 26, 180 units  1,260

Cost of goods available for sale, 1,360 units $5,960

Less ending Inventory, 440 units   $1,927.20

Cost of goods sold, 920 units     $4,032.80

a2) FIFO:

Beginning Inventory  600 units   $1,800

Purchases: January 12, 580 units 2,900

Purchases: January 26, 180 units  1,260

Cost of goods available for sale, 1,360 units $5,960

Less ending Inventory, 440 units   $2,560

Cost of goods sold, 920 units     $3,400

a3) LIFO

Beginning Inventory  600 units   $1,800

Purchases: January 12, 580 units 2,900

Purchases: January 26, 180 units  1,260

Cost of goods available for sale, 1,360 units $5,960

Less ending Inventory, 440 units   $1,320

Cost of goods sold, 920 units     $4,640

a4) Specific Identification:

Beginning Inventory  600 units   $1,800

Purchases: January 12, 580 units 2,900

Purchases: January 26, 180 units  1,260

Cost of goods available for sale, 1,360 units $5,960

Less ending Inventory, 440 units   $2,280

Cost of goods sold, 920 units     $3,680

B. Partial Income Statement under:

                                  Average cost   FIFO    LIFO     Specific Identification

Beginning Inventory      $1,800        $1,800    $1,800          $1,800

Purchases                        4,160          4,160       4,160            4,160

Cost of goods for sale $5,960       $5,960   $5,960        $5,960

Less ending Inventory    1,927.20    2,560       1,320          2,280

Cost of goods sold     $4,032.80  $3,400   $4,640       $3,680

Explanation:

a) The average cost per unit under Average Method =

Average cost per unit =$4.38 (5,960/1,360)

Ending Inventory, 440 x $4.38 = $1,927.20

b) Ending Inventory under FIFO: 440 units

Cost of 180 units = $1,260

Cost of 260 units =  1,300 (260 x $5)

Total cost = $2,560

c) Ending Inventory under LIFO: 440 units

Cost of 440 units from beginning inventory = 440 x $3 = $1,320

d) Ending Inventory under Specific Identification: 440 units

Remaining opening inventory 140 units at $3 = $420

Remaining Jan 12, 120 units at $5 = $600

Remaining Jan 26, 180 units at $7 = $1,260

Total cost of ending inventory = $2,280

e) These are various inventory costing methods which present different results in their cost of goods sold and the ending inventory.

6 0
3 years ago
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