Wet'n'Wild Water Company provides white water rafting experiences to outdoor enthusiasts.The company is in the process of analysing the purchase of new inflatable rafts and jet boats.Information on the proposal is provided below. $\begin{array}{lr} \text {Initial investment:}\\ \text { Asset } & \$ 130000 \\ \text { Working capital } & \$ 32000 \\ \text { Operations (per year for four years): } & \\ \text { Cash receipts } & \$ 150000 \\ \text { Cash expenditures } & \$ 88000\\ \text { Disinvestment: } \\ \quad \text { Salvage value of drill (existing) } & \$ 10000 \\ \text { Discount rate } & 20 \% \end{array}$ What is the net present value of the investment? Assume there is no recovery of working capital.

A) $(2140) B) $8456 C) $86 336 D) $42 362 A) $(2140) B) $8456 C) $86 336 D) $42 362

Rockhampton Engineering needs to overhaul its drill press or buy a new one.The facts have been gathered,and they are as follows: \[\begin{array} { | l | r | r | } \hline & \text { Current Machine } & \text { New Machine } \\ \hline \text { Purchase Price, New } & \$ 80000 & \$ 100000 \\ \hline \text { Current book value } & 30000 & \\ \hline \text { Overhaul needed now } & 40000 & \\ \hline \text { Annual cash operating costs } & 70000 & 40000 \\ \hline \text { Current salvage value } & 20000 & \\ \hline \text { Salvage value in five years } & 5000 & 20000 \\ \hline \end{array}\] Required: Which alternative is the most desirable with a current required rate of return of 20%? Show computations,and assume no taxes. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Present value of keeping current system:

Central Trailer Supply has received three proposals for its new trailer assembly line.Information on each proposal is as follows: \[\begin{array} { | l | r | r | r | } \hline & \text { Proposal X } & \text { Proposal Y } & \text { Proposal Z } \\ \hline \text { Initial investment in equipment } & \$ 115000 & \$ 130000 & \$ 14500 \\ \hline \text { Working capital needed } & 0 & 0 & 15000 \\ \hline \text { Annual cash saved by operations: } & & & \\ \hline \text { Year 1 } & 55000 & 60000 & 60000 \\ \hline \text { Year 2 } & 55000 & 40000 & 60000 \\ \hline \text { Year 3 } & 55000 & 40000 & 60000 \\ \hline \text { Year 4 } & 55000 & 10000 & 6000 \\ \hline \text { Salvage value end of year: } & & & \\ \hline \text { Year 1 } & 30000 & 25000 & 45000 \\ \hline \text { Year 2 } & 25000 & 20000 & 40000 \\ \hline \text { Year 3 } & 20000 & 15000 & 35000 \\ \hline \text { Year 4 } & 15000 & 10000 & 25000 \\ \hline \text { Working capital returned: } & 0 & 0 & 15000 \\ \hline \end{array}\] Required: Determine each proposal's payback. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Proposal X payback = $115 000/$55 000 =

Exam 18: Capital Budgeting and Cost Analysis

The Launceston Corporation has an annual cash inflow from operations from its investment in a capital asset of $11 000 each year for five years.The corporation's income tax rate is 25%.Calculate the five years' total after-tax cash inflow from operations.

(Multiple Choice)

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Question 81

Wet'n'Wild Water Company provides white water rafting experiences to outdoor enthusiasts.The company is in the process of analysing the purchase of new inflatable rafts and jet boats.Information on the proposal is provided below. Initial investment: Asset \ 130000 Working capital \ 32000 Operations (per year for four years): Cash receipts \ 150000 Cash expenditures \ 88000 Disinvestment: Salvage value of drill (existing) \ 10000 Discount rate 20\% What is the net present value of the investment? Assume there is no recovery of working capital.

(Multiple Choice)

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Question 82

Coolangatta Corporation recently purchased a new machine for $485 650 with a 10-year life.The old equipment has a remaining life of 10 years and no disposal value at the time of replacement.Net cash flows will be $85 956 per year.What is the internal rate of return?

(Multiple Choice)

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Question 83

Aluminum Casting Company wants to buy a moulding machine that can be integrated into its computerised manufacturing process.It has received three bids,and related manufacturer's specifications,for the machine.The bids range from $3 500 000 to $3 550 000.The estimated annual savings of the machines range from $260 000 to $270 000.The payback periods are almost identical and the net present values are all within $8000 of each other.The CEO just doesn't know which vendor to choose since all of the selection criteria are so close together. Required: What suggestions do you have for the CEO? _ _

(Essay)

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Question 84

It is possible to use the net present value in an analysis of customer profitability.

(True/False)

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Question 85

Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is called:

(Multiple Choice)

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Question 86

How does accelerated depreciation result in greater savings in cash outflows. _ _

(Essay)

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Question 87

The following capital budgeting technique(s)measure all expected future cash inflows and outflows as if they occurred at a single point in time:

(Multiple Choice)

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Question 88

Rockhampton Engineering needs to overhaul its drill press or buy a new one.The facts have been gathered,and they are as follows: Current Machine New Machine Purchase Price, New \ 80000 \ 100000 Current book value 30000 Overhaul needed now 40000 Annual cash operating costs 70000 40000 Current salvage value 20000 Salvage value in five years 5000 20000 Required: Which alternative is the most desirable with a current required rate of return of 20%? Show computations,and assume no taxes. _ _

(Essay)

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Question 89

What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method? _ _

(Essay)

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Question 90

Post-investment audits:

(Multiple Choice)

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Question 91

Central Trailer Supply has received three proposals for its new trailer assembly line.Information on each proposal is as follows: Proposal X Proposal Y Proposal Z Initial investment in equipment \ 115000 \ 130000 \ 14500 Working capital needed 0 0 15000 Annual cash saved by operations: Year 1 55000 60000 60000 Year 2 55000 40000 60000 Year 3 55000 40000 60000 Year 4 55000 10000 6000 Salvage value end of year: Year 1 30000 25000 45000 Year 2 25000 20000 40000 Year 3 20000 15000 35000 Year 4 15000 10000 25000 Working capital returned: 0 0 15000 Required: Determine each proposal's payback. _ _

(Essay)

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Question 92

The very last step in the final stage in the capital budgeting process is to make the investment identified previously.

(True/False)

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Question 93

What is an important advantage of the net present value method of capital budgeting over the internal rate-of-return method?

(Multiple Choice)

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Question 94

The common discounted cash flow methods are net present value,internal rate of return,and payback.

(True/False)

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Question 95

Which of the following methods is not one used by management in analysing the expected results of capital budgeting decisions?

(Multiple Choice)

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Question 96

There no after-tax consequences in capital budgeting for the following items:

(Multiple Choice)

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Question 97

A capital budgeting tool that management can use to summarise the difference in the future net cash inflows from an intangible asset at two different points in time is referred to as:

(Multiple Choice)

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Question 98

Assume your goal in life is to retire with 1.5 million dollars.How much would you need to save at the end of each year if interest rates average 5% and you have a 25-year work life?

(Multiple Choice)

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Question 99

Discuss a range of factors that managers may have to consider when making capital budgeting decisions that are strategic in nature. _ _

(Essay)

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Question 100

The Launceston Corporation has an annual cash inflow from operations from its investment in a capital asset of $11 000 each year for five years.The corporation's income tax rate is 25%.Calculate the five years' total after-tax cash inflow from operations.

Coolangatta Corporation recently purchased a new machine for $485 650 with a 10-year life.The old equipment has a remaining life of 10 years and no disposal value at the time of replacement.Net cash flows will be $85 956 per year.What is the internal rate of return?

It is possible to use the net present value in an analysis of customer profitability.

Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is called:

How does accelerated depreciation result in greater savings in cash outflows. _ _

The following capital budgeting technique(s)measure all expected future cash inflows and outflows as if they occurred at a single point in time:

What are the four alternative methods for evaluating capital budgeting projects? What is an advantage and disadvantage of each method? _ _

Post-investment audits:

The very last step in the final stage in the capital budgeting process is to make the investment identified previously.

What is an important advantage of the net present value method of capital budgeting over the internal rate-of-return method?

The common discounted cash flow methods are net present value,internal rate of return,and payback.

Which of the following methods is not one used by management in analysing the expected results of capital budgeting decisions?

There no after-tax consequences in capital budgeting for the following items:

A capital budgeting tool that management can use to summarise the difference in the future net cash inflows from an intangible asset at two different points in time is referred to as:

Assume your goal in life is to retire with 1.5 million dollars.How much would you need to save at the end of each year if interest rates average 5% and you have a 25-year work life?

Discuss a range of factors that managers may have to consider when making capital budgeting decisions that are strategic in nature. _ _

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

Exam 18: Capital Budgeting and Cost Analysis

The Launceston Corporation has an annual cash inflow from operations from its investment in a capital asset of $11 000 each year for five years.The corporation's income tax rate is 25%.Calculate the five years' total after-tax cash inflow from operations.

Coolangatta Corporation recently purchased a new machine for $485 650 with a 10-year life.The old equipment has a remaining life of 10 years and no disposal value at the time of replacement.Net cash flows will be $85 956 per year.What is the internal rate of return?

It is possible to use the net present value in an analysis of customer profitability.

Comparison of the actual results for a project to the costs and benefits expected at the time the project was selected is called:

How does accelerated depreciation result in greater savings in cash outflows. _____________________________________________________________________________________________ _____________________________________________________________________________________________

The following capital budgeting technique(s)measure all expected future cash inflows and outflows as if they occurred at a single point in time:

Post-investment audits:

The very last step in the final stage in the capital budgeting process is to make the investment identified previously.

What is an important advantage of the net present value method of capital budgeting over the internal rate-of-return method?

The common discounted cash flow methods are net present value,internal rate of return,and payback.

Which of the following methods is not one used by management in analysing the expected results of capital budgeting decisions?

There no after-tax consequences in capital budgeting for the following items:

A capital budgeting tool that management can use to summarise the difference in the future net cash inflows from an intangible asset at two different points in time is referred to as:

Assume your goal in life is to retire with 1.5 million dollars.How much would you need to save at the end of each year if interest rates average 5% and you have a 25-year work life?

Management Accounting in Context

Different Costs for Different Purposes

Determining How Costs Behave

Costvolumeprofit Analysis

Estimating the Cost of Producing Services

Estimating the Costs of Products and Inventory

Target Costing, Managing Activities and Managing Capacity

Activity-Based Management and Activity-Based Costing

Pricing and Customer Profitability

Decision Making and Relevant Information

Budgeting, Management Control and Responsibility Accounting

Flexible Budgets, Direct Cost Variances and Management Control

Flexible Budgets, Overhead Cost Variances and Management Control

Allocation of Support-Department Costs, Common Costs and Revenues

Strategy Formation, Strategic Control and the Balanced Scorecard

Quality, Time and the Balanced Scorecard

Inventory Management, Just-In-Time and Simplified Costing Methods

Management Control Systems, Transfer Pricing and Multinational Considerations

Performance Measurement, Compensation and Multinational Considerations

Measuring and Reporting Sustainability

Filters

How does accelerated depreciation result in greater savings in cash outflows. _ _