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Katena32 [7]
3 years ago
13

Compute the payback period for each of these two separate investments: A new operating system for an existing machine is expecte

d to cost $280,000 and have a useful life of five years. The system yields an incremental after-tax income of $80,769 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $11,000. A machine costs $200,000, has a $15,000 salvage value, is expected to last seven years, and will generate an after-tax income of $44,000 per year after straight-line depreciation.
Business
1 answer:
Westkost [7]3 years ago
6 0

Answer and Explanation:

The computation of the payback period for each investment is shown below;

For Option 1

= Initial Investment ÷  Annual Cash Flow

= $280,000 ÷ $134,569

= 2.081 Year

Here Annual cash inflow is

= Net income + Depreciation

= $80,769 + (($280,000 - $11,000) ÷ 5)

= $134,569

For Option-2

= Initial Investment ÷ Annual Cash Flow

= $200,000 ÷ $70,429

= 2.84 Year

Here Annual cash inflow is

= Net income + Depreciation

= $44,000 + (($200,000 - $15,000) ÷ 7)

= $70,429

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Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has
alekssr [168]

Answer:

The present worth of this investment = -$31,204.78

Explanation:

Note: See the attached excel file for the calculation of the present worth of this investment (in bold red color).

In the attached excel file, the following are used:

Loan from bank = Purchase price * (1 / 4) = $130,000 * (1 / 4) = $32,500

Initial cost = Purchase price - Loan from bank = $130,000 - $32,500 = $97,500

The annual required equal loan payments is calculated using the formula for calculating loan amortization as follows:

P = (A * (r * (1 + r)^n)) / (((1 + r)^n) - 1) .................................... (1)

Where,

P = Annual required equal loan payment = ?

A = Loan amount from bank = $32,500

r = interest rate = 12%, or 0.12

n = number of payment years = 3

Substituting all the figures into equation (1), we have:

P = Annual required equal loan payment = ($32,500 * (0.12 * (1 + 0.12)^3)) / (((1 + 0.12)^3) - 1) = $13,531.34

From the attached excl file, the present worth of this investment is equal to -$31,204.78

Download xlsx
3 0
3 years ago
Ramirez Corporation is subject to income tax only in State A. Ramirez generated the following income and deductions. Federal tax
Alborosie

Answer:

a. $495,000

Explanation:

Data provided

Federal taxable income = $500,000

State A income tax expense = $45,000

Depreciation Modification = $300,000, $250,000

The computation of taxable income is shown below:-

Federal taxable income + State A income tax expense - Depreciation Modification

= $500,000 + $45,000 - ($300,000 - $250,000)

= $545,000 - $50,000

= $495,000

8 0
3 years ago
Which of the following is true of liquidity? Select one: a. Liquidity metrics include debt ratio, times interest earned, and rat
kompoz [17]

Answer:

c. Liquidity is the ability to convert assets to cash.

Explanation:

The company's level of liquidity deals with the company's level of cash which is usually held to meet current obligations.

The liquidity ratios are ratios that indicate how well and quickly a company can convert current assets into cash for the settlement of current liabilities.

Examples of liquidity ratios include current ratio, acid test/quick ratio , cash ratio and working capital ratio.

6 0
3 years ago
The discount rate is the interest rate charged by:_______.
disa [49]

Answer:

B

Explanation:

I believe it is the interest rate the federal reserve uses for loaning to banks. Its the minimal rate, also.

5 0
3 years ago
On January 1, Year 1, Alla Co. sold a property to Mish Co. for $400,000 and simultaneously leased it back for 3 years. The carry
vichka [17]

Answer: $30,000

Explanation:

In accounting, the treatment of the Sale and Operating Leaseback operation is such that a gain is only recognized if the sales price is more than the fair value. In such a case the difference between the fair value and the carrying price is considered the Gain on Sale.

The Difference between the sales price and the fair value is to be amortized over the period of use.

Seeing as the selling price is more than the fair value, the Gain on Sale is therefore,

= Fair Value - Carrying Value

= 310,000 - 280,000

= $30,000

$30,000 is the amount of gain on sale of the property recognized by Alla on January 1, Year 1.

7 0
3 years ago
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