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, doubledeclining balance depreciation is applied, using a 5year 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 253 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 aftertax income of $69,230 each year after deducting its straightline 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 aftertax income of $38,000 per year after straightline depreciation. 
Exercise 254 Accounting rate of return LO P2
A machine costs $300,000 and is expected to yield an aftertax net income of $9,000 each year. Management predicts this machine has a 9year service life and a $60,000 salvage value, and it uses straightline depreciation. Compute this machine’s accounting rate of return. (Round your answer to 2 decimal places.)
Exercise 255 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 12year life and no salvage value. It will be depreciated on a straightline 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 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 










