User Account

All Pages

Net cost of machine for capital budgeting purposes

Assignment Help Accounting Basics
Reference no: EM13149984

The Campbell Company is evaluating the proposed acquisition of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use. The machine falls into the MACRS 3- year, and it would be sold after 3 years for $65,000. The machine would require an increase in net working capital (inventory) of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before tax operating costs, mainly labor. Campbell's marginal tax rate is 35%.

a) What is the net cost of the machine for capital budgeting purposes? (That is, what is the year 0 net cash flow?)

b) What are the net operating cash flows in Years 1,2, and 3?

c) What is the additional Year 3 cash flow (that is, the after-tax salvage and the return of working capital)?

d) If the project's cost of capital is 12%, should the machine be purchased?

Reference no: EM13149984

Questions Cloud

Substantive ways in which herb and renee may use : From the scenario, suggest substantive ways in which Herb and Renee may use the information in the table in order to ascertain the profit maximizing level of output and price. Provide a rationale for your decision.
Promissory note payable to the order : A $5,000 promissory note payable to the order of Neptune is discounted to Bane by blank endorsement for $4,000. King steals the note from Bane and sells it to Ott, who promises to pay King $4,500. After paying King $3,000, Ott learns that King sto..
By a minimal interpretation that makes a formula : By a minimal interpretation that makes a formula true, we mean that if one atom is removed from the interpretation then the resulting interpretation does no longer make the formula true.
Find score of on the college entrance exam : A score of on the college entrance exam. Assuming that average refers to the mean, which of the following claims must be true based on this information?
Net cost of machine for capital budgeting purposes : What is the net cost of the machine for capital budgeting purposes? (That is, what is the year 0 net cash flow?) What are the net operating cash flows in Years 1,2, and 3? What is the additional Year 3 cash flow (that is, the after-tax salvage and th..
Find the activation energy for this sterilisation process : milk is pasteurised when heated to 63 C for 30 minutes, but if it is heated to 74 C it takes only 15 seconds for the same result. Find the activation energy for this sterilisation process
Petition in bankruptcy : Burton did not notify Wilson of these facts. Two days later when Burton again presented the instrument for payment, Burton was told that Foxx's creditors had filed a petition in bankruptcy that morning. Which of the following statements is true?
Calculate the ph of a buffer solution : Calculate the pH of a buffer solution prepared by dissolving 0.200 moles of benzoic acid (C6H5COOH) and 0.450 moles of sodium benzoate (C6H5COONa in enough water to make 1.00 L of solution
The blue dragon restaurant : The Blue Dragon Restaurant is a new Chinese Restaurant in town. As the only Chinese restaurant in the area, it faces the following daily demand curve:

Reviews

Write a Review

Accounting Basics Questions & Answers

  Computing budgeted purchases for fourth quarter

A Company forecasts sales of $91,500 for the quarter ended December 31. Its gross profit rate is 18% of sales, and its September 30 inventory is $25,000. If the December 31 inventory is targeted at $7,500, budgeted purchases for the fourth quarter..

  Cash collections from accounts receivable

The company expects to sell 20% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month of the sale, 25% in the month following the sale, and the remainder in the following month. The cash collections in Sep..

  Exchange shares-journal entry

S. Company exchanged 400 shares of Daily Company common stock, which Herman was holding as an investment, for equipment from West Company. What journal entry should Herman make to record this exchange?

  Determining the amount of interest

Heritage company receives a 4-year, $20,000 note receivable on July 1, 2010 that does not bear interest. Interest on similar notes is 10%. Assuming that the present value of the note is $14,000 on July 1, 2010, the amount of interest that will be ..

  Pretax accounting income and taxable income

Sherrod, Inc., reported pretax accounting income of $92 million for 2011. The following information relates to differences between pretax accounting income and taxable income:

  Amount of the deferred tax liability

Lyons company has a tax rate of 40% and income taxes payable of $72,000 at the end of 2010. There were no deferred taxes at the beginning of 2010. What is the amount of the deferred tax liability at the end of 2010?

  Detailed description of journal entry

The Mars Corporation issued 2,000 shares of its $10 par value common stock for $70,000. The Mars Corporation also incurred $1,500 of costs associated with issuing the stock.

  Subsequent reissuance of the treasury stock

Assuming that the cost method of accounting for treasury stock transaction is used, what is time effect of the subsequent reissuance of the treasury stock on each of the following?

  Analysis of business simulations

Do an Internet search to identify the types of games and business simulations that are available. Select one and provide a description and an analysis of it. Discuss the learning content objectives.

  Held-to-maturity debt securities

On July 1, 2011, Patton Company should increase its Held-to-Maturity Debt Securities account for the Scott Co. bonds by:

  Payback period of the project

The annual net operating income from the project would be $135,000, which includes depreciation of $37,000. The scrap value of the project's assets at the end of the project would be $25,000. The payback period of the project is closest to:

  Determining unrelated business income tax

The local garden club, an exempt organization, had gross unrelated business income during the year of $15,000. Its costs associated with this income were $9,800. What is its unrelated business income tax?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd