# ACCOUNTING

Exercise 25-1 Payback period computation; uneven cash flows LO P1

 Beyer Company is considering the purchase of an asset for \$360,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.

 Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows \$ 80,000 \$ 50,000 \$ 70,000 \$ 250,000 \$ 13,000 \$ 463,000

Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your answers to 2 decimal places.)

 A machine can be purchased for \$210,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double-declining balance depreciation is applied, using a 5-year life and a zero salvage value.

 Year 1 Year 2 Year 3 Year 4 Year 5 Net incomes \$ 13,000 \$ 28,000 \$ 53,000 \$ 40,500 \$ 103,000

Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and payback period answer to 3 decimal places.)

Exercise 25-3 Payback period computation; even cash flows LO P1

 Compute the payback period for each of these two separate investments:

 a. A new operating system for an existing machine is expected to cost \$240,000 and have a useful life of four years. The system yields an incremental after-tax income of \$69,230 each year after deducting its straight-line depreciation. The predicted salvage value of the system is \$9,000. b. A machine costs \$180,000, has a \$13,000 salvage value, is expected to last seven years, and will generate an after-tax income of \$38,000 per year after straight-line depreciation.

Exercise 25-4 Accounting rate of return LO P2

A machine costs \$300,000 and is expected to yield an after-tax net income of \$9,000 each year. Management predicts this machine has a 9-year service life and a \$60,000 salvage value, and it uses straight-line depreciation. Compute this machine’s accounting rate of return. (Round your answer to 2 decimal places.)

Exercise 25-5 Payback period and accounting rate of return on investment LO P1, P2

 B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost \$480,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 192,000 units of the equipment’s product each year. The expected annual income related to this equipment follows.

 Sales \$ 300,000 Costs Materials, labor, and overhead (except depreciation) 160,000 Depreciation on new equipment 40,000 Selling and administrative expenses 30,000 Total costs and expenses 230,000 Pretax income 70,000 Income taxes (30%) 21,000 Net income \$ 49,000

Exercise 25-6 Computing net present value LO P3

 B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost \$368,000 with a 4-year life and no salvage value. It will be depreciated on a straight-line basis. K2B Co. concludes that it must earn at least a 8% return on this investment. The company expects to sell 147,200 units of the equipment’s product each year. The expected annual income related to this equipment follows. (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided.)

 Sales \$ 230,000 Costs Materials, labor, and overhead (except depreciation) 81,000 Depreciation on new equipment 92,000 Selling and administrative expenses 23,000 Total costs and expenses 196,000 Pretax income 34,000 Income taxes (30%) 10,200 Net income \$ 23,800

 Compute the net present value of this investment. (Round “PV Factor” to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount.)

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