1.The Higgins Company has just purchased a piece of equipment at a cost of $300,000. This equipment will reduce operating costs by $55,000 each year for the next eleven years. This equipment replaces old equipment which was sold for $14,000 cash. The new equipment has a payback period of: (Ignore income taxes.) (Round your answer to 1 decimal place.)
A.16.2 Years
B.5.5 Years
C.5.2 Years
D.11.10
2.The management of Serpas Corporation is considering the purchase of a machine that would cost $170,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $41,000 per year. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.)
Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.
The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
A.-18,464
B. 35,000
C.-33,811
D. 27,384
3. Lett Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 12 years. The company uses a discount rate of 17% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is -$578,526. (Ignore income taxes.)
Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using tables.
Management is having difficulty estimating the salvage value of the aircraft. How large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive? (Round discount factor(s) to 3 decimal places and final answers to the nearest dollar amount.)
A.$3,806,092
B.$3,403,094
C.$98,349
D.$578,526
4.
The management of Londo Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 4 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is −$316,080. (Ignore income taxes.)
Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.
How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)
$31,608
$316,080
$79,020
$99,710
5.
The management of Melchiori Corporation is considering the purchase of a machine that would cost $360,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $116,000 per year. The company requires a minimum pretax return of 14% on all investment projects. (Ignore income taxes.)
Click here to view Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.
The present value of the annual cost savings of $116,000 is closest to: (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)
$451,124
$175,448
$1,091,462
$696,000
6.
Gull Inc. is considering the acquisition of equipment that costs $550,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are: (Ignore income taxes.)
Incremental net
cash flows
Year 1$145,000
Year 2$195,000
Year 3$156,000
Year 4$165,000
Year 5$155,000
Year 6$135,000
Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using tables.
If the discount rate is 13%, the net present value of the investment is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
$435,000
$148,776
$89,228
$591,264
7.
Charley has a typing service. He estimates that a new computer will result in increased cash inflow $1,100 in Year 1, $1,500 in Year 2 and $2,500 in Year 3. (Ignore income taxes.)
Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using tables.
If Charley’s required rate of return is 12%, the most that Charley would be willing to pay for the new computer would be: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
$3,459
$2,296
$3,278
$3,958
8.
Shields Company has gathered the following data on a proposed investment project: (Ignore income taxes.)
Investment required in equipment$460,000
Annual cash inflows$77,000
Salvage value$0
Life of the investment16 years
Discount rate12%
The simple rate of return on the investment is closest to: (Round your answer to the closest interest rate.)
5%
10%
15%
11%
9.
Sibble Corporation is considering the purchase of a machine that would cost $330,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $25,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $63,000. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.
The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
−$45,194
−$33,144
−$8,144
−$21,094
10.
Shields Company has gathered the following data on a proposed investment project: (Ignore income taxes.)
Investment required in equipment$470,000
Annual cash inflows$77,000
Salvage value$0
Life of the investment20 years
Discount rate14%
Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.
The internal rate of return on the investment is closest to: (Round discount factor(s) to 3 decimal places and final answer to the closest interest rate.)
12%
14%
16%
18%
11.
Cezar Corporation’s comparative balance sheet appears below:
Cezar Corporation
Comparative Balance Sheet
Ending
BalanceBeginning
Balance
Assets:
Current assets:
Cash and cash equivalents$ 84,000 $ 51,000
Accounts receivable33,900 41,000
Inventory76,200 71,000
Total current assets194,100 163,000
Property, plant, and equipment535,500 510,000
Less accumulated depreciation195,500 171,000
Net property, plant, equipment340,000 339,000
Total assets$534,100 $502,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$ 27,800 $ 31,000
Accrued liabilities61,800 71,000
Income taxes payable63,600 61,000
Total current liabilities153,200 163,000
Bonds payable96,200 91,000
Total liabilities249,400 254,000
Stockholders’ equity:
Common stock42,000 51,000
Retained earnings242,700 197,000
Total stockholders’ equity284,700 248,000
Total liabilities and stockholders’ equity$534,100 $502,000
The company did not dispose of any property, plant, and equipment during the year. Its net income for the year was $48,400 and its cash dividends were $2,700. The company did not retire any bonds payable or issue any common stock during the year. Its net cash provided by operating activities and net cash used in financing activities are:
net cash provided by operating activities, $31,600; net cash used in financing activities,$7,900
net cash provided by operating activities, $31,600; net cash used in financing activities,$6,500
net cash provided by operating activities, $65,000; net cash used in financing activities,$6,500
net cash provided by operating activities, $65,000; net cash used in financing activities,$7,900
12.
Nordquist Company’s net income last year was $31,000. The company did not sell or retire any property, plant, and equipment last year. Changes in selected balance sheet accounts for the year appear below:
Increases
(Decreases)
Asset and Contra-Asset Accounts:
Accounts receivable$15,500
Inventory$(4,000)
Prepaid expenses$11,000
Accumulated depreciation$28,000
Liability Accounts:
Accounts payable$15,000
Accrued liabilities$(8,500)
Income taxes payable$3,100
Based solely on this information, the net cash provided by operating activities under the indirect method on the statement of cash flows would be:
$68,600
$15,900
$46,100
$91,100
13. Last year Burford Company’s cash account decreased by $33,000. Net cash used in investing activities was $8,800. Net cash provided by financing activities was $29,500. On the statement of cash flows, the net cash flow provided by (used in) operating activities was:
$20,700
$(53,700)
$(33,000)
$(12,300)
14.
Mccloe Corporation’s balance sheet and income statement appear below:
Mccloe Corporation
Comparative Balance Sheet
Ending
BalanceBeginning
Balance
Assets:
Cash and cash equivalents$ 58 $ 43
Accounts receivable48 62
Inventory78 62
Property, plant and equipment535 520
Less: accumulated depreciation275 262
Total assets$444 $425
Liabilities and stockholders’ equity:
Accounts payable$ 71 $ 57
Accrued liabilities44 28
Income taxes payable57 57
Bonds payable77 144
Common stock47 42
Retained earnings148 97
Total liabilities and stockholders’ equity$444 $425
Income Statement
Sales$568
Cost of goods sold360
Gross margin208
Selling and administrative expenses141
Net operating income67
Gain on sale of plant and equipment22
Income before taxes89
Income taxes32
Net income$ 57
Cash dividends were $6. The company did not issue any bonds or repurchase any of its own common stock during the year. The net cash provided by (used in) financing activities for the year was:
rev: 05_24_2013_QC_31013
$(67)
$(68)
$(6)
$5
15.
Lueckenhoff Corporation’s most recent balance sheet appears below:
Lueckenhoff Corporation
Comparative Balance Sheet
Ending
BalanceBeginning
Balance
Assets:
Cash and cash equivalents$ 44 $ 40
Accounts receivable59 52
Inventory86 80
Property, plant and equipment790 732
Less: accumulated depreciation289 206
Total assets$690 $698
Liabilities and stockholders’ equity:
Accounts payable$ 37 $ 34
Bonds payable460 668
Common stock72 64
Retained earnings121 (68)
Total liabilities and stockholders’ equity$690 $698
The company’s net income for the year was $242 and it did not sell or retire any property, plant, and equipment during the year. Cash dividends were $53. The net cash provided by (used in) operating activities for the year was:
$315
$73
$169
$368
16.
Hocking Corporation’s comparative balance sheet appears below:
Hocking Corporation
Comparative Balance Sheet
Ending
BalanceBeginning
Balance
Assets:
Current assets:
Cash and cash equivalents$ 47,000 $ 27,000
Accounts receivable22,300 27,000
Inventory61,700 57,000
Prepaid expenses15,300 17,000
Total current assets146,300 128,000
Property, plant, and equipment356,000 337,000
Less accumulated depreciation176,000 144,000
Net property, plant, and equipment180,000 193,000
Total assets$326,300 $321,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$ 21,700 $ 18,000
Accrued liabilities65,700 57,000
Income taxes payable49,700 47,000
Total current liabilities137,100 122,000
Bonds payable64,500 77,000
Total liabilities201,600 199,000
Stockholders’ equity:
Common stock34,300 38,000
Retained earnings90,400 84,000
Total stockholders’ equity124,700 122,000
Total liabilities and stockholders’ equity$326,300 $321,000
The company’s net income (loss) for the year was $8,800 and its cash dividends were $2,400. It did not sell or retire any property, plant, and equipment during the year.
The company’s net cash used in investing activities is:
$19,000
$36,700
$13,000
$51,000
17. Hocking Corporation’s comparative balance sheet appears below:
Hocking Corporation
Comparative Balance Sheet
Ending
BalanceBeginning
Balance
Assets:
Current assets:
Cash and cash equivalents$ 57,000 $ 37,000
Accounts receivable31,300 37,000
Inventory72,700 67,000
Prepaid expenses24,300 27,000
Total current assets185,300 168,000
Property, plant, and equipment374,000 347,000
Less accumulated depreciation196,000 164,000
Net property, plant, and equipment178,000 183,000
Total assets$363,300 $351,000
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$ 32,700 $ 28,000
Accrued liabilities76,700 67,000
Income taxes payable60,700 57,000
Total current liabilities170,100 152,000
Bonds payable59,000 87,000
Total liabilities229,100 239,000
Stockholders’ equity:
Common stock45,400 48,000
Retained earnings88,800 64,000
Total stockholders’ equity134,200 112,000
Total liabilities and stockholders’ equity$363,300 $351,000
The company’s net income (loss) for the year was $31,000 and its cash dividends were $6,200. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities.
The company’s net cash provided by operating activities is:
$89,500
$78,100
$83,800
$51,800
18. Boole Corporation’s net cash provided by operating activities was $125; its capital expenditures were $68; and its cash dividends were $27. The company’s free cash flow was:
$30
$98
$57
$220
19.
Financial statements of Ansbro Corporation follow:
Ansbro Corporation
Comparative Balance Sheet
Ending
BalanceBeginning
Balance
Assets:
Cash and cash equivalents$ 38 $ 35
Accounts receivable94 86
Inventory53 45
Property, plant and equipment738 620
Less: accumulated depreciation358 313
Total assets$565 $473
Liabilities and stockholders’ equity:
Accounts payable$ 71 $ 80
Bonds payable165 250
Common stock104 86
Retained earnings225 57
Total liabilities and stockholders’ equity$565 $473
Income Statement
Sales$775
Cost of goods sold438
Gross margin337
Selling and administrative expenses104
Net operating income233
Income taxes40
Net income$ 193
Cash dividends were $25. The company did not dispose of any property, plant, and equipment. It did not issue any bonds payable or repurchase any of its own common stock. The following questions pertain to the company’s statement of cash flows.
The net cash provided by (used in) investing activities for the year was:
$118
$(73)
$73
$(118)
20.
Schleich Corporation’s most recent balance sheet appears below:
Schleich Corporation
Comparative Balance Sheet
Ending
BalanceBeginning
Balance
Assets:
Cash and cash equivalents$ 42 $ 31
Accounts receivable40 27
Inventory52 67
Property, plant and equipment744 552
Less: accumulated depreciation286 264
Total assets$592 $413
Liabilities and stockholders’ equity:
Accounts payable$ 57 $ 74
Accrued liabilities22 20
Income taxes payable45 30
Bonds payable107 168
Common stock87 82
Retained earnings274 39
Total liabilities and stockholders’ equity$592 $413
Net income for the year was $330. Cash dividends were $62. The company did not sell or retire any property, plant, and equipment during the year. The net cash provided by (used in) operating activities for the year was:
$306
$24
$465
$354
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