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Paul [167]
3 years ago
7

Last year, Jackson Tires reported net sales of $80 million and total operating costs (including depreciation) of $52 million. It

had $115 million of investor-supplied capital, with an after-tax cost of 7.5%. If the company’s tax rate is 40%, how much value did its management create or lose for Jackson Tire during the year?
Business
1 answer:
Zolol [24]3 years ago
7 0

Answer:

Value created for the firm = $8.18 million

Explanation:

given data

net sales = $80 million

total operating costs = $52 million

Investor-supplied capital = $115 million

after-tax cost = 7.5%

company’s tax rate = 40%

solution

we get here Earning Before Interest and tax that is express as

Earning Before Interest and tax = Net Sales - Operating costs   .........1

put here value and we get

Earning Before Interest and tax  = $80 million - $52 million

Earning Before Interest and tax  = $28 million

and

Net Operating profit after tax = $28 × ( 1 - 40% )    .........2

Net Operating profit after tax  = $16.8 million

and

Return on investor-supplied capital will be

Return on investor-supplied = $115 million × 7.5%

Return on investor-supplied = $8.625 million

so here Value created for the firm will  be

Value created for the firm = Net operating profit after tax - Return on investor-supplied capital    ..................3

Value created for the firm = $16.8 - $8.625 = $8.175 million

Value created for the firm = $8.18 million

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Answer:

devopment expense                                   4,000,000

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training employees expense                     <u>      50,000</u>

Total expenses                                            6,050,000

Explanation:

the cost before the knowledge of future benefit will come for the development of the software  is treated as expense. The reasoning behind this is the potential uncertainty about the furture at this time. The company didn't know about the likelihood of future benefits.

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The FOURX Corp. has purchased $50,000 of experimental equipment. The anticipated salvage value is $5500 at the end of its 5-year
Anestetic [448]

Answer:

b. NPW(SL): $33,738; NPW(DDB): $37,068; Recommendation: DDB

Explanation:

The computation is shown below:

As we know that

Present value is

=  [Cash Flow ÷ (1 + Rate of Interest)^Year]

where,

Rate of Interest = 10%

Under Straight-line depreciation:

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So, the depreciationper year is

=  [($50,000 - $5,500) ÷ 5]

= $8,900

<u>Year    Beginning   Depreciation  End                 Present value </u>

<u>            book value                  book value of depreciation </u>

1            $50,000      $8,900        $41,100             $8,090.91

2           $41,100         $8,900        $32,200           $7,355.37

3           $32,200       $8,900         $23,300           $6,686.70

4           $23,300       $8,900         $14,400           $6,078.82

5           $14,400        $8,900         $5,500              $5,526.20

                                                                                  $33,738.00

Under Double declining depreciation:

Depreciation rate per year = (1 ÷ Useful  Life) × 100

= 1 ÷ 5 × 100

= 20%

Now for double-declining, the rate is doubled

So,

= 20% × 2

= 40%

<u>Year    Beginning   Depreciation  End                 Present value </u>

<u>            book value                  book value of depreciation </u>

1            $50,000      $20,000       $30,000           $18,181.82

2           $30,000       $12,000       $18,000            $9,917.36

3           $18,000       $7,200         $10,800            $5,409.47

4           $10,800       $4,320         $6,480             $2,950.62

5           $6,480       $980              $5,500            $608.50

                                                                                $37,068

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