Problem 3-26 (Algo) Return on assets analysis [LO3-2] In January 2009, the Status Quo Company was formed. Total assets were $593,000, of which $351,000 consisted of deprecial assets. Status Quo uses straight-line depreciation of $35,100 per year, and in 2009 it estimated its fixed assets to have useful I 10 years. Aftertax income has been $43,000 per year each of the last 10 years. Other assets have not changed since 2009. a. Compute return on assets at year-end for 2009, 2011, 2014, 2016 and 2018. Note: Input your answers as a percent rounded to 2 decimal places. Year 2009 2011 2014 2016 2019 Return on Assets 62.91 % % % % % b. To what do you attribute the phenomenon shown in part a? Annual depreciation charges O Increase in current assets O Increase in market share c. Now assume income increased by 10 percent each year. What effect would this have on your answers to part a?

Problem 3-26 (Algo) Return on assets analysis [LO3-2] In January 2009, the Status Quo Company was formed. Total assets were $593,000, of which $351,000 consisted of deprecial assets. Status Quo uses straight-line depreciation of $35,100 per year, and in 2009 it estimated its fixed assets to have useful I 10 years. Aftertax income has been $43,000 per year each of the last 10 years. Other assets have not changed since 2009. a. Compute return on assets at year-end for 2009, 2011, 2014, 2016 and 2018. Note: Input your answers as a percent rounded to 2 decimal places. Year 2009 2011 2014 2016 2019 Return on Assets 62.91 % % % % % b. To what do you attribute the phenomenon shown in part a? Annual depreciation charges O Increase in current assets O Increase in market share c. Now assume income increased by 10 percent each year. What effect would this have on your answers to part a?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 1PROB

See similar textbooks

Similar questions

Required Information [The following information applies to the questions displayed below.] Peng Company is considering an investment expected to generate an average net income after taxes of $3,400 for three years. The investment costs $54,900 and has an estimated $10,200 salvage value. Assume Peng requires a 15% return on its investments. Compute the net present value of this investment. Assume the company uses straight-line depreciation. (PV of $1. FV of $1. PVA of $1. and FVA of $1) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign.) Cash Flow Annual cash flow Residual value Select Chart Net present value Amount x PV Factor = Present Value
Required information A potential investment has a cost of $555,000 and a useful life of 6 years. Annual cash sales from the investment are expected to be $267,382 and annual cash operating expenses are expected to be $105,332. The expected salvage value at the end of the investment's life is $70,000. The company uses straight-line depreciation for all assets based on the full cost of the assets. The company has a before-tax discount rate of 17%, an after-tax discount rate of 14%, and a tax rate of 30%. Required: 1. Assume the company wants to consider this investment before-tax. (Round dollar amounts to the nearest whole dollar and IRR to one decimal place (i.e. .055 = 5.5%). Enter negative amounts with a minus sign.) Calculate the before-tax annual PMT of the investment Calculate the before-tax FV of the investment $ Calculate the before-tax NPV of the investment $ Calculate the before-tax IRR of the investment 2. Assume the company wants to consider this investment after-tax. (Round…
Return to question The Ste. Marie Division of Pacific Media Corporation just started operations. It purchased depreciable assets costing $48.0 million and having a four-year expected life, after which the assets can be salvaged for $9.6 million. In addition, the division has $48.0 million in assets that are not depreciable. After four years, the division will have $48.0 million available from these nondepreciable assets. This means that the division has invested $96.0 million in assets with a salvage value of $57.6 million. Annual depreciation is $9.6 million. Annual operating cash flows are $20.6 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. Required: a. & b. Compute ROI, using net book value and gross book value for each year. (Enter your answers as a percentage rounded to 1 decimal place (i.e., 32.1).) Answer is complete but not entirely…
Q10: Gulf Mushroom Products Company purchased a machine for OMR 10,000 for which depreciation will be measured as per diminishing balance method (WDV). Depreciation is calculated at 8% per annum for first 3 years and after that due to change in the accounting standards the rate of depreciation is changed to 10% per annum for next 2 years.a) What will be the book value of the machine after 5 years b) The accounts department informed you that book value of the machine after 5 years will be OMR 4,000. Do you agree with the value specified by accounting department? c) Is depreciation good or bad for the business? Discuss with reasons
Referring to PA7 where Kenzie Company purchased a 3-D printer for $450,000, consider how the purchase of the printer impacts not only depreciation expense each year but also the assets book value. What amount will be recorded as depreciation expense each year, and what will the book value be at the end of each year after depreciation is recorded?
Depreciation A firm is evaluating the acquisition of an asset that costs $69,800 and requires $3,830 in installation costs. If the firm depreciates the asset under MACRS, using a 5-year recovery period (see table 9), determine the depreciation charge for each year. Data Table The annual depreciation expense for year 1 will be $ (Round to the nearest dollar.) The annual depreciation expense for year 2 will be $ (Round to the nearest dollar.) (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a The annual depreciation expense for year 3 will be $ (Round to the nearest dollar.) spreadsheet.) The annual depreciation expense for year 4 will be $ (Round to the nearest dollar.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes The annual depreciation expense for year 5 will be $ Percentage by recovery year* 5 years (Round to the nearest dollar.) Recovery year 3 years 7 years 10 years The…
D. Double Declining Method Problem: Determine the rate of depreciation, the total depreciation up to end of the 8th year, and the book value at the end of 8 years for an asset that costs P15,000 now and has an estimated scrap value of P2,000 at the end of 10 years by (a) declining balance method and (b) the double declining balance method. (Make a table in Microsoft Excel)
Provide answer in table format 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 $384,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 153,600 units of the equipment’s product each year. The expected annual income related to this equipment follows. Sales $ 240,000 Costs Materials, labor, and overhead (except depreciation on new equipment) 128,000 Depreciation on new equipment 32,000 Selling and administrative expenses 24,000 Total costs and expenses 184,000 Pretax income 56,000 Income taxes (20%) 11,200 Net income $ 44,800 1. Compute the payback period.2. Compute the accounting rate of return for this equipment.
Saved Required information [The following information applies to the questions displayed below.] Peng Company is considering an investment expected to generate an average net income after taxes of $2,900 for three years. The investment costs $47,100 and has an estimated $6,600 salvage value. Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation. Accounting Rate of Return Choose Denominator: Accounting Rate of Return %3D Choose Numerator: Accounting rate of return
Rework Example 7-21 using the MACRS depreciation method (assume three-year property class) instead of the SL depreciation method 7-21. A new municipal refuse collection vehicle can be purchased for $84,000. Its expected useful life is 6 years, at which time the market value and book value will be zero. Before-tax cash flow (BTCF) will be +$18,000 per year over the 6-year life of the vehicle. (7.9) a. Use straight-line depreciation, an effective income tax rate of 40% and an after-tax MARR of 12% to determine the present worth of the investment. b. What is the after-tax internal rate of return? c. Is this vehicle a sound investment? Explain your answer.
Value of Accelerated Depreciation: Sum-of-Years’-Digits (SYD) and Double-DecliningBalance (DDB) Methods Freedom Corporation acquired a fixed asset for $100,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rateof 8% and an income tax rate of 40%.Required1. What is the incremental present value (rounded to the nearest whole dollar) of the tax benefits resultingfrom calculating depreciation using the sum-of-the-years’-digits (SYD) method rather than the straight-line(SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges. 2. What is the incremental present value (rounded to the nearest whole dollar) of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than thestraight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges. 3. What is the incremental present value (rounded to…
Year Operating Income 1 $ 61,400 2 51,400 36,400 26,400 (3,600) $172,000 3 4 5 Total Year 1 2 3 4 5 6 Warehouse 7 8 9 10 Required: Each project requires an investment of $368,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis. Present Value of $1 at Compound Interest 6% 10% 0.943 0.890 0.840 0.751 0.592 0.558 0.909 Warehouse Warehouse Net Cash Flow Tracking Technology $135,000 125,000 110,000 100,000 70,000 $540,000 0.386 0.826 0.797 0.756 0.694 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.665 0.513 0.452 0.376 0.627 0.467 0.404 0.327 0.424 Technology Operating Income 12% $ 34,400 34,400 34,400 34,400 34,400 $172,000 15% 20% 0.893 0.870 0.833 0.335 0.279 0.233 0.361 0.284 0.194 0.322 0.247 Total present value of net cash flow $ Amount to be invested Net present value 2. The 1a. Compute the average rate of return…