Exercise 256 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 4year life and no salvage value. It will be depreciated on a straightline 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.) 
Exercise 258 NPV and profitability index LO P3
Following is information on two alternative investments being considered by Jolee Company. The company requires a 6% return from its investments. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1). (Use appropriate factor(s) from the tables provided.)) 

Project A 
Project B 
Initial investment 

$ 
(186,325 
) 


$ 
(148,960 
) 

Expected net cash flows in year: 










1 


53,000 




33,000 


2 


50,000 




59,000 


3 


92,295 




57,000 


4 


94,400 




79,000 


5 


56,000 




29,000 



1(a) 
For each alternative project compute the net present value. (Round “PV Factor” to 4 decimal places. Round your intermediate and final answers to the nearest dollar amount.)
Exercise 2511 Keep or replace LO A1
Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $38,000 and a remaining useful life of 5 years, at which time its salvage value will be zero. It has a current market value of $48,000. Variable manufacturing costs are $33,000 per year for this machine. Information on two alternative replacement machines follows. 

Alternative A 
Alternative B 
Cost 
$ 
117,000 

$ 
117,000 

Variable manufacturing costs per year 

22,100 


10,500 


Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign.) 
Exercise 2512 Scrap or rework LO A1
A company must decide between scrapping or reworking units that do not pass inspection. The company has 10,000 defective units that cost $5.70 per unit to manufacture. The units can be sold as is for $2.50 each, or they can be reworked for $3.50 each and then sold for the full price of $9.50 each. If the units are sold as is, the company will have to build 10,000 replacement units at a cost of $5.70 each, and sell them at the full price of $9.50 each. 
(1) 
What is the incremental income from selling the units as scrap and reworking and selling the units? 
Exercise 2513 Decision to accept additional business or not LO A1
Farrow Co. expects to sell 500,000 units of its product in the next period with the following results. 





Sales (500,000 units) 

$ 
7,500,000 

Costs and expenses 




Direct materials 


1,000,000 

Direct labor 


2,000,000 

Overhead 


500,000 

Selling expenses 


750,000 

Administrative expenses 


1,285,000 






Total costs and expenses 


5,535,000 






Net income 

$ 
1,965,000 







The company has an opportunity to sell 50,000 additional units at $12 per unit. The additional sales would not affect its current expected sales. Direct materials and labor costs per unit would be the same for the additional units as they are for the regular units. However, the additional volume would create the following incremental costs: (1) total overhead would increase by 16% and (2) administrative expenses would increase by $215,000. 
Calculate the combined total net income if the company accepts the offer to sell additional units at the reduced price of $12 per unit.
Exercise 2514 Make or buy decision LO A1
Gilberto Company currently manufactures one of its crucial parts at a cost of $3.30 per unit. This cost is based on a normal production rate of 80,000 units per year. Variable costs are $1.80 per unit, fixed costs related to making this part are $80,000 per year, and allocated fixed costs are $40,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $3.00 per unit guaranteed for a threeyear period. 
Calculate the total incremental cost of making 80,000 units. (Round cost per unit answers to 2 decimal places.) 


Exercise 2515 Sell or process decision LO A1
Cobe Company has already manufactured 25,000 units of Product A at a cost of $25 per unit. The 25,000 units can be sold at this stage for $410,000. Alternatively, the units can be further processed at a $240,000 total additional cost and be converted into 5,600 units of Product B and 11,400 units of Product C. Per unit selling price for Product B is $106 and for Product C is $54. 
1. 
Prepare an analysis that shows whether the 25,000 units of Product A should be processed further or not.
Exercise 2516 Analysis of income effects from eliminating departments LO A1
[The following information applies to the questions displayed below.]
Suresh Co. expects its five departments to yield the following income for next year. 

Dept. M 
Dept. N 
Dept. O 
Dept. P 
Dept. T 
Sales 

$ 
41,000 


$ 
15,700 



$ 
34,500 


$ 
38,000 



$ 
15,700 


Expenses 























Avoidable 


4,100 



13,800 




11,300 



7,000 




18,400 


Unavoidable 


17,000 



7,700 




2,700 



14,000 




5,400 


























Total expenses 


21,100 



21,500 




14,000 



21,000 




23,800 


























Net income (loss) 

$ 
19,900 


$ 
(5,800 
) 


$ 
20,500 


$ 
17,000 



$ 
(8,100 
) 


























Recompute and prepare the departmental income statements (including a combined total column) for the company under each of the following separate scenarios. 

