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ivolga24 [154]
3 years ago
15

You are evaluating two different silicon wafer milling machines. The Techron I costs $276,000, has a three-year life, and has pr

etax operating costs of $75,000 per year. The Techron II costs $480,000, has a five-year life, and has pretax operating costs of $48,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $52,000. If your tax rate is 21 percent and your discount rate is 12 percent, compute the EAC for both machines. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Business
1 answer:
kramer3 years ago
7 0

Answer:

Techron I

-$154,842

Techron II

-$144,981

Explanation:

Techron I

Cash Flow From Year 1 to Year 3

Pretax operating costs             ($75,000)

Depreciation ($276,000 / 3)   <u>($92,000)</u>

Profit before tax                       ($167,000)

Tax (21% x $167,000)                <u>$35,070</u>

Profit after tax                           ($131,930)

Add back Depreciation            <u>$92,000</u>

Cash Flow after tax                   (<u>$39,930)</u>

Terminal Value = Salvage value - Tax = $52,000 - ($52,000 x 21%) = $41,080

NPV = ($276,000) + [ (39,930) x (1+12%)^-1] + [ (39,930) x (1+12%)^-2] + [ (39,930) x (1+12%)^-3] = ($276,000) + ($35,652) + ($31,832) + ($28,421) = ($371,905)

EAC = NPV/(1-(1+r)^-n)/r

EAC = -371,905 / ( 1 - ( 1 + 12% )^-3/12% = -$154,842

Techron II

Cash Flow From Year 1 to Year 3

Pretax operating costs             ($48,000)

Depreciation ($480,000 / 5)   <u>($96,000)</u>

Profit before tax                       ($144,000)

Tax (21% x $167,000)                <u>$30,240</u>

Profit after tax                           ($113,760)

Add back Depreciation            <u>$96,000</u>

Cash Flow after tax                   (<u>$17,746)</u>

Terminal Value = Salvage value - Tax = $52,000 - ($52,000 x 21%) = $41,080

NPV = ($480,000) + [ (17,746) x (1+12%)^-1] + [ (17,746) x (1+12%)^-2] + [ (17,746) x (1+12%)^-3] = ($480,000) + ($15,845) + ($14,147) + ($12631) = ($522,623)

EAC = NPV/(1-(1+r)^-n)/r

EAC = -522,623 / ( 1 - ( 1 + 12% )^-5/12% = -$144,981

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Answer:

A. FIFO - 78 units and $7,770 and Cost of Goods Sold $12,738

B. LIFO - Inventory Valuation $7,312 and Cost of Goods Sold $13,196

C. Weighted Average - inventory Valuation $7,304 and Cost of Goods Sold $13,204

Explanation:

Detailed calculation as under:

<u>A. FIFO</u>

First 73 Units are sold from the inventory on May 1. Therefore, we first take the beginning inventory units and then we take the next in line purchases made during the period. In this case the first 34 units are completely taken and then out of the 44 units only 39 units are taken.

Next 68 units are sold from the inventory on October 28. Now we will take the remainder 5 units bought on March 28 (which are not yet sold). Then we take 63 units out of the 68 units purchased on August 22.

The company's ending inventory on FIFO Basis is remaining 5 units bought on 22 August and 73 units bought on 14 October. There total value is (5 x 94) + (73 x 100) = $7,770

Cost of Goods Sold = Total Goods Cost available for sale - Inventory ending valuation

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<u>B. LIFO</u>

First 73 Units are sold from the inventory on May 1. Therefore, we first take the units purchased on 28 March and then we take the beginning inventory. In this case the first 44 units are completely taken and then out of the 34 units only 29 units are taken.

Next 68 units are sold from the inventory on October 28. Now we will take the units bought on 14 October i.e. 68 units out of the 73 units bought.

The company's ending inventory on LIFO Basis is remaining 5 units in the beginning inventory, remaining 5 units bought on 14 October and 68 units bought on 22 August. There total value is (5 x 84) + (5 x 100) + (68 x 94) = &7,312

Cost of Goods Sold = Total Goods Cost available for sale - Inventory ending valuation

$13,196 = $20,508 - $7,312

<u>C. Weighted Average</u>

In order to calculate Weighted average cost method we divide the total cost of inventory (Beginning and Purchased) with the total units, this yields average cost per unit. Then we multiple the average cost per unit with the units remaining after sales. As shown below:

$20,508 / 219 = $93.64 per unit

$93.64 x 78 units = $7,304

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When should you use Add other funds to this deposit grid in a Deposit Transaction? Identify 3 correct options. (Select all that
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Option B is correct as the employee or an individual will get the tax refund from the IRS which can be deposited to the deposit grid.

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