1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Sedbober [7]
2 years ago
14

Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alte

rnatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,980 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,080 and $800, respectively. Alternatively, Mr. Fitch could purchase for $9,720 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,300 and $2,260, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.
Required
Determine the payback period and unadjusted rate of return (use average investment) for each alternative.
Business
1 answer:
AlexFokin [52]2 years ago
4 0

Answer:

* For the machine investment decision:

  + Payback period: 1.68 years

  + Unadjusted rate of return: 26.27%

* For the equipment investment decision:

  + Payback period: 1.83 years

  + Unadjusted rate of return: 29.71%

Explanation:

<u>* For the machine investment decision:</u>

Payback calculation:

+ Incremental  in yearly cashflow = ( Increase in revenue - Increase in operating expenses ) x ( 1 - tax rate) + Tax shield from increase in depreciation (which is Depreciation in one year x Tax rate) = (6080 - 800 ) * 0.8 + (7980/3)*0.2 = $4756

+ Payback period = Increase in yearly cashflow / Initial investment = 7980 /4756 = 1.68 years

Unadjusted rate of return:

+ Increamental profit in one-year= ( Increase in revenue - Increase in operating expenses - Increase in depreciation) x ( 1 - tax rate) = (6080 - 800 - 7980/3) * 0.8 = $2096

+ Unadjusted rate of return = Increamental profit in one-year / Initial investment = 2096 / 7980 = 26.27%

<u>* For the equipment investment decision:</u>

Payback calculation:

+ Incremental  in yearly cashflow = ( Increase in revenue - Increase in operating expenses ) x ( 1 - tax rate) + Tax shield from increase in depreciation (which is Depreciation in one year x Tax rate) = (8300 - 2260 ) * 0.8 + (9720/4)*0.2 = $5318

+ Payback period = Increase in yearly cashflow / Initial investment = 9720 /5318 = 1.83 years

Unadjusted rate of return:

+ Increamental profit in one-year= ( Increase in revenue - Increase in operating expenses - Increase in depreciation) x ( 1 - tax rate) = (8300 - 2260 - 9720/4) * 0.8 = $2888

+ Unadjusted rate of return = Increamental profit in one-year / Initial investment = 2888 / 9720 = 29.71%

You might be interested in
Livingston Fabrication has created the following aggregate plan for the next 5 months (see PDF): Assume that Livingston will hav
Andreyy89

Answer:

Explanation:

worker's production rate = 60/3 = 20units per hour

monthly capacity 160 x 20 = 3200 units.

capacity needed to produce 2000000 units

= 2000000/3200

= 625

therefore, since they already have 500 workers, they need to hire 125 more workers.

b) At the end of October they will have 2 million inventory.

c) Average inventory in each of the months has been listed in the attachment below.

3 0
3 years ago
in 1998 fischer corp issued bonds with an 8 percent coupon rate and a 1000 face value. the bonds mature on marc 1, 2023. if an i
ArbitrLikvidat [17]

Answer:

approximate YTM = 7.48%

Explanation:

the approximate yield to maturity = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

approximate YTM = {$80 + [($1,000 - $1,050)/15]} / [($1,000 + $1,050)/2]

approximate YTM = ($80 - $3.33) / $1,025

approximate YTM = $76.67 / $1,025

approximate YTM = 0.0748 ≈ 7.48%

5 0
3 years ago
On November 1, 2019, a firm accepted a 5-month, 10 percent note for $1,080 from a customer with an overdue balance. The accrued
stiks02 [169]

Answer: $18

Explanation:

From the question, we are informed that On November 1, 2019, a firm accepted a 5-month, 10 percent note for $1,080 from a customer with an overdue balance.

The accrued interest recorded for this note for the year ended December 31, 2019 goes thus:

The value of notes receivable is $1080, then the interest for 5 months will be:

= ($1080 × 10% ×5)/100 × 12

= $54000/1200

= $45

We are further told that the interest accrued from November 1, 2019 to December 31, 2019. This means that it was for 2 months. The accrued interest will now be:

= $45 × 2/5

= $90/5

= $18

3 0
3 years ago
Why is this so difficult
Sever21 [200]

Answer:

What is your question?

8 0
2 years ago
Spirits of northern vale guide Me
Olegator [25]

what if they dont want to

3 0
3 years ago
Other questions:
  • Even when a manager is not able to grant employees' requests or suggestions, employees are much more likely to accept the decisi
    15·1 answer
  • Why are some industries regulated?
    9·1 answer
  • In economics, the demand for a good refers to the amount of the good that people:
    14·1 answer
  • Andrea Apple opened Apple Photography, Inc. on January 1 of the current year. During January, the following transactions occurre
    13·1 answer
  • Flagg records adjusting entries at its December 31 year-end. At December 31, employees had earned $12,000 of unpaid and unrecord
    11·1 answer
  • Vaughn Company has the following securities in its investment portfolio on December 31, 2020 (all securities were purchased in 2
    12·1 answer
  • The ___ show(s) the quantity of a good consumers would be willing and able to purchase at a given time for a range of prices whi
    11·1 answer
  • Consider the following transactions for Huskies Insurance Company:
    8·1 answer
  • The production function gets flatter, while the total cost curve gets steeper due to the fact that Group of answer choices at lo
    11·1 answer
  • Regulatory policy is a balance between ___________________ safety and ____________________ rights.
    5·2 answers
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!