Sonic Corporation purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX (A+)

Sonic Corporation purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX, at a cost of $27,000. The equipment has an estimated residual value of $1,500. The equipment is expected to process 255,000 payments over its three-year useful life. Per year, expected payment transactions are 61,200, year 1; 140,250, year 2; and 53,550, year 3.

Required:

1 Complete a depreciation schedule for each of the alternative methods.

(a) Straight-line

(b) Units-of-production

(c) Double-declining-balance

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Plastic Works Corporation bought a machine at the beginning of the year at a cost of $12,000 (A+)

Plastic Works Corporation bought a machine at the beginning of the year at a cost of $12,000. The estimated useful life was five years, and the residual value was $2,000. Assume that the estimated productive life of the machine is 10,000 units. Expected annual production was: year 1, 3,000 units; year 2, 3,000 units; year 3, 2,000 units; year 4, 1,000 units; and year 5, 1,000 units.

Required:

1 Complete a depreciation schedule for each of the alternative methods.

(a) Straight-line

(b) Units-of-production

(c) Double-declining-balance

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Dunay Corporation is considering investing $860,000 in a project (A+)

Dunay Corporation is considering investing $860,000 in a project. The life of the project would be 6 years. The project would require additional working capital of $36,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $182,000. The salvage value of the assets used in the project would be $46,000. The company uses a discount rate of 13%. (Ignore income taxes.)

Required:

Compute the net present value of the project.

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Brewer Company is considering purchasing a machine that would cost $752,800 and have a useful life of 12 years (A+)

Brewer Company is considering purchasing a machine that would cost $752,800 and have a useful life of 12 years. The machine would reduce cash operating costs by $94,100 per year. The machine would have a salvage value of $107,230 at the end of the project. (Ignore income taxes.)

Required:

a. Compute the payback period for the machine.

b. Compute the simple rate of return for the machine.

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The management of an amusement park is considering purchasing a new ride for $56,000 (A+)

The management of an amusement park is considering purchasing a new ride for $56,000 that would have a useful life of 8 years and a salvage value of $7,000. The ride would require annual operating costs of $27,000 throughout its useful life. The company\’s discount rate is 10%. Management is unsure about how much additional ticket revenue the new ride would generate-particularly because customers pay a flat fee when they enter the park that entitles them to unlimited rides. Hopefully, the presence of the ride would attract new customers.

Required:

How much additional revenue would the ride have to generate per year to make it an attractive investment?

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Lugano’s Pizza Parlor is considering the purchase of a large oven and related equipment for mixing and baking “crazy bread.” (A+)

Lugano’s Pizza Parlor is considering the purchase of a large oven and related equipment for mixing and baking “crazy bread.” The oven and equipment would cost $281,600 delivered and installed. It would be usable for about 15 years, after which it would have a 10% scrap value. The following additional information is available:

a. Mr. Lugano estimates that purchase of the oven and equipment would allow the pizza parlor to bake and sell 78,000 loaves of crazy bread each year. The bread sells for $1.50 per loaf.

b. The cost of the ingredients in a loaf of bread is 40% of the selling price. Mr. Lugano estimates that other costs each year associated with the bread would be as follows: salaries, $27,000; utilities, $5,000; and insurance, $3,000.

c. The pizza parlor uses straight-line depreciation on all assets, deducting salvage value from original cost.

Required:

1. Prepare a contribution format income statement showing the net operating income each year from production and sale of the crazy bread.

2a. Compute the simple rate of return for the new oven and equipment.

2b. If Mr. Lugano accepts any project with a simple rate of return greater than 5%, will he acquire the franchise?

3a. Compute the payback period on the oven and equipment.

3b. If Mr. Lugano accepts any investment with a payback period of less than nine years, will he acquire the franchise?

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Yancey Company has limited funds available for investment and must ration the funds among four competing projects (A+)

Yancey Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows:

Project Investment Net Present List of the Internal Rate of

Required Value Project (Years) Return

A $890,000 $133,570 5 16%

B $765,000 $341,100 10 20%

C $740,000 $169,840 5 19%

D $940,000 $129,410 3 18%

The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, which to accept second, and so forth. The company’s investment funds are limited.

Required:

1. Compute the project profitability index for each project.

2. In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return.

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Renfree Mines, Inc., owns the mining rights to a large tract of land in a mountainous area (A+)

Renfree Mines, Inc., owns the mining rights to a large tract of land in a mountainous area. The tract contains a mineral deposit that the company believes might be commercially attractive to mine and sell. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area:

Cost of equipment required $910,000

Annual net cash receipts $345,000

Working capital required $245,000

Cost of road repairs in four years $70,000

Salvage value of equipment in thirteen years $110,000

Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth.

The mineral deposit would be exhausted after thirteen years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 19%.

Required:

a. Determine the net present value of the proposed mining project.

b. Should the project be accepted?

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The Children’s Place Retail Stores, Inc and Subsidiaries (PLCE) (A+)

The Children’s Place Retail Stores, Inc and Subsidiaries (PLCE)

Retail Family Clothing

1) Modified Income statement (projection of five years)

2) Modified Balance Sheet (projection of five years)

3) Modified Cash flow statement (projection of five years)

4) Calculation of WACC

5) Discounted cash flows

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In early August 2007, Paul White, vice-president of finance of Savannah Petroleum Company (A+)

In early August 2007, Paul White, vice-president of finance of Savannah Petroleum Company, was reviewing a proposal that the company\’s parent, Edgewater Oil Company, participate in a joint venture with Gulf Coast Towing Company to make the American flag tanker Monterey a jumbo tanker. Edgewater held an option that gave it until September 18, 1977, to decide if it would join Gulf Coast in the venture.

Savannah Petroleum Company is a distributor of home heating and industrial fuel oil. It serves a number of heating oil retailers, industrial firms, and public utilities in southeastern Georgia. The company operates a fuel pier, tank farm, and truck-loading facility in Savannah, Georgia. All petroleum products are received by tanker and distributed to customers by barge or truck. Although most petroleum products are imported ……………………omitted……………………………..

In preparing his analysis, Mr. White realized that he should include adjustments for inflation, but he was uncertain as to how to reflect them in the relevant cost, revenue, and interest rate factors. He believed, however, that operating costs would increase by at least 5% per year, and that the charter rate would escalate during the life of the tanker to cover increased costs but would probably be fixed for three-year intervals by each lease agreement.

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