Using before-tax information and the net present value

Assignment Help Accounting Basics
Reference no: EM13574571

Fresno Manufacturing Company specializes in the production of precision tools. Management is in the process of selecting a new drill press. The press under consideration will cost $92,000 plus necessary installation charges of $5,000. Experience indicates that the press will last for five years and should have a residual value at the end of that period of about $10,000. Expected annual cash revenues from the press should average $45,000, and related cash operating costs should be around $20,000. Management has decided on a minimum desired before-tax rate of return of 10 percent.

Present value multipliers:


6percent 10percent 12percent
present value of $1 at the end of five years .747 .621 .567
present value of $1 received in each of the next five years 4.212 3.791 3.605

a. Using before-tax information and the net present value method to evaluate this capital investment, determine whether the company should purchase the drill press. Show all calculations to support your answer.

b. Calculate the profitability index. Should your reject or accept the project based on the profitability?

c.If management has decided on a minimum desired before-tax rate of return of 12 percent, should the drill press be purchased? Show all computations to support your answer.

Reference no: EM13574571

Questions Cloud

The break even or cost volume profit cvp model is based on : the break even or cost volume profit cvp model is based on a number of assumptions. discuss these assumptions and
Match the appropriate letter for the key term or concept to : match the appropriate letter for the key term or concept to each definition provided items 1-10.a. ratioj. turnoverb.
What is the annual percentage rate apr if interest is paid : annual percentage rate apr. suppose that a company borrows 20000 for 1 year at a stated rate of interest of 9 percent.
Describe the transactions necessary to take advantage of : futures arbitrage joan tam cfa believes she has identified an arbitrage opportunity as indicated by the information
Using before-tax information and the net present value : fresno manufacturing company specializes in the production of precision tools. management is in the process of
Carnival corporation has recently placed into service some : carnival corporation has recently placed into service some of the largest cruise ships in the world. one of these ships
What will be the price of the stock on the ex-dividend date : the mann company belongs to a risk class for which the appropriate discount rate is 10 percent. mann currently has
Complete the performance report that will help ms jaskis : kam mammi supervisor of the kammi corporations machining department was visibly upset after being reprimanded for her
Your broker concluded that if they were well-managed they : in a recent discussion with you your broker commented that well-managed firms are not necessarily more profitable than

Reviews

Write a Review

Accounting Basics Questions & Answers

  Prepare a system flowchart

Prepare a system flowchart, following good flowcharting practices including annotations, documenting the GCO system  as described above.  Use VISIO or another flowcharting tool of your choice.

  Western bank amp trust purchased land and a building for

western bank amp trust purchased land and a building for the lump sum of 3 million dollars. to get the maximum tax

  Overhead is applied to production at the rate of 15 per

atkinsons reliable tools makes two products that use similar raw materials 587q and 253x. estimated production needs

  You will make three different executive summaries an

you will make three different executive summaries. an executive summary isnt more than one and half pages long and

  Determining ending retained earnings balance

Declared stock dividends of $40,000 Declared cash dividends of $30,000 A 2 for 1 stock split involving the issue of 200,000 shares of $5 par value common stock for 100,000 shares of $10 par value common stock Suffered a net loss of $60,000 What is..

  How would you suggest cango make potential customers feel

how would you suggest cango make potential customers feel comfortable to use their site to make purchases? 2. does

  Calculation of amount budgeted for the month

Andrea's Hobbies produces and sells a luxury animal pillow for $40.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other infor..

  What is sterlings correct cash balance at march 31

In addition, Sterling discovered that it had erroneously recorded a check for $46 that should have been recorded for $64. What is Sterling's correct Cash balance at March 31?

  In looking at your business when and why would you want to

in looking at your business when and why would you want to use a one-sample mean test either z or t or a two- sample

  Circumstances under which randy decision would be acceptable

Discuss circumstances under which Randy's decision would be acceptable under GAAP and circumstances under which it would definitely be unacceptable. (2 to 3 Paragraphs).

  Preferred stock or common stock as an investmen twhy

Write a 500 - to 800-word paper explaining why preferred stock is referred to aspreferred and what some of the features added to preferred stock are that make it more attractive to investors. Would you select preferred stock or common stock as..

  Determining amr stockholders equity

Prepare the stockholders' equity section (including schedules of retained earnings and additional paid-in capital) of the balance sheet of AMR Corporation for the year 2007 on the basis of the foregoing information. Draft a note to the financial s..

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!

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