Old press – Originally purchased 3 years ago at an installed cost of $400,000, it is being depreciated under MACRS using a 5-year recovery period. The old press has a remaining economic life of 5 years. It can be sold today to net $420,000 before taxes; if it is retained, it can be sold to net $150,000 before taxes at the end of 5 years. Press A – This highly automated press can be purchased for $830,000 and will require $40,000 in installation costs. It will be depreciated under MACRS using a 5-year recovery period.
Expected inflation rate is 3%. Operating cost expected to be $4,000 per day and to increase at a rate 1% above inflation. Maintenance days: Initial 8 days, 12 days after 5 years and 16 days after 10 years annually. Capital Expenditure in 2007: $300,000 and 2012: $350,000. These expenditures will be depreciated on a straight line basis over 5 years.
Chapter 11 Investments SOLUTIONS MANUAL 49. [LO 1] Dana intends to invest $30,000 in either a Treasury bond or a corporate bond. The Treasury bond yields 5 percent before tax and the corporate bond yields 6 percent before tax. Assuming Dana’s federal marginal rate is 25 percent and her marginal state rate is 5 percent which of the two options should she choose? If she were to move to another state where her marginal state rate would be 10 percent, would her choice be any different?
This year the split is proposed to be 50-50. The hospital’s CFO is also proposing that a scoring system be used to evaluate this year’s proposals. She has set up a scoring system that allows a maximum of five points. Thus the low is a score of one point and the high is a score of five points. In addition to the points earned by a funding proposal, the CFO will allow one “bonus point” for upgrading existing equipment and one “bonus point” for funding expansion of existing programs.
On January 1, 2010, Roberto Company adopts a compensatory stock option plan and grants 40 executives 1,000 shares each at $30 a share. The fair value per option is $7 on the grant date. The company estimates that its annual employee turnover rate during the service period of three years will be 4%. However, at the end of 2011, the company estimates that the employee turnover will be 5% a year for the entire service period. The compensation expense for 2011 will be (Round off turnover calculations to three decimal places and answer to the nearest dollar.)
2. Based on the following, calculate the costs of buying and of leasing a motor vehicle. Purchase Costs Leasing Costs Down payment $1,500 Security deposit $500 Loan payment $450 for 48 months Lease payment $450 for 36 months Estimated value at End of loan $4,000 End of lease charges $600 Opportunity cost interest rate: 4 percent 3. You can purchase a service contract for all of your major appliances for $180 a year. If the appliances are expected to last for 10 years, and you earn 5 percent on your savings, what would be the future value of the amount you would pay for the service contract?
RTS had the right to extend Anacomp’s five-year marketing agreement an additional five years or to cancel it if Anacomp did not their best efforts to market CIS. The agreement between Anacomp and RTS is that RTS pays six million upfront. RTS had to pay another 1.5 million because the costs where exceeded. RTS borrowed the 1.5 million from Anacomp so that they could pay the extra fee. Besides this deal the thirteen participated banks pays a fee of 150.000 dollar to advise Anacomp in the development in the project.
The firm will maintain its present debt ratio of .5 when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13 percent. What will be the new operating return on assets for Salco after the plant’s renovation? c. Given that the plant renovation in part b occurs and Salco’s interest expense rises by $50,000 per year, what will be the return earned on the common stockholders’ investment? Compare this rate of return with that earned before the renovation.
5-1 Exercise Preparing a Contribution Format Income Statement Wheeler Corporation's most recent income statement follows: Total Sales (8,000 units) Variable expenses Contribution margin Fixed expenses Net operating income Required: $208,000 144,000 $64,000 56,000 $8,000 Per Unit $26.00 18.00 $8.00 Prepare a new contribution format income statement under each of the following conditions (consider each case independently): 1. The sales volume increases by 50 units. The new income statement would be: Total Sales (8050 units) Variable expenses Contribution margin Fixed expenses Net Operating Income $209,300 144,900 $64,400 56,000 $8,400 Per unit $26.00 18.00 $8.00 As an alternative, you could have found the net income using the following method: Original net operating income Change in contribution margin (50 units * $8.00 per unit) New net operating income $8,000 400 $8,400 2. The sales volume declines by 50 units. Sales (7950 units) Variable expenses Contribution margin Fixed expenses Net Operating Income $206,700 143,100 $63,600 56,000 $7,600 $26.00 18.00 $8.00 As an alternative, you could have found the net income using the following method: Original net operating income Change in contribution margin (-50 units * $8.00 per unit) New net operating income 3.