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  Prepare general journal entries

  $3.00

  a.	To launch the company, Jenna Aracel, the owner, invested $250,000 cash, office equipment with a value of $9,800, and $70,000 of drafting equipment in exchange for common stock.
  b.	The company purchased land worth $54,000 for an office by paying $8,800 cash and signing a long-term note payable for $45,200.
  c.	The company purchased a portable building with $56,000 cash and moved it onto the land acquired in b.
  d.	The company paid $4,000 cash for the premium on an 18-month insurance policy.
  e.	The company completed and delivered a set of plans for a client and collected $6,100 cash.
  f.	The company purchased $32,000 of additional drafting equipment by paying $11,000 cash and signing a long-term note payable for $21,000.
  g.	The company completed $16,000 of engineering services for a client. This amount is to be received in 30 days.
  h.	The company purchased $1,850 of additional office equipment on credit.
  i.	The company completed engineering services for $24,000 on credit.
  j.	The company received a bill for rent of equipment that was used on a recently completed job. The $1,445 rent cost must be paid within 30 days.
  k.	The company collected $8,000 cash in partial payment from the client described in transaction g.
  l.	The company paid $1,500 cash for wages to a drafting assistant.
  m.	The company paid $1,850 cash to settle the account payable created in transaction h.
  n.	The company paid $1,045 cash for minor maintenance of its drafting equipment.
  o.	The company paid $9,500 cash in dividends.
  p.	The company paid $2,200 cash for wages to a drafting assistant.
  q.	The company paid $3,600 cash for advertisements on the Web during June.

   

  Required:
  1.	Prepare general journal entries to record these transactions.
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  Tackling the free rider problem

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  Tackling the free rider problem

  How might the free rider problem be tackled differently in the cases of:

  A) paying for Australia’s national defense?

  B) paying for public transport in any of the capital cities?
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  Post each transaction to the T accounts

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  Transactions

  May 1          Terry purchased computer equipment for $8,400, paying $1,000 now, and issuing a promissory note for the balance; the note is due in monthly installments of $500 plus interest at 10% on the unpaid balance.

  8           Terry records service revenue earned: $3,200 from cash customers; $12,000 for customers billed for completed services.

  22           Common stock is issued for land with a fair value of $35,000.

  31           An invoice for $1,200 is received from the company’s advertising agency for ads which were run on radio and TV during May; the invoice is due in 30 days.

  Refer to the transactions for Terry Company.

  Use the transactions incurred by the Terry Corporation to set up T accounts and post each transaction to the T accounts.
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  Paying for each formula unit

  $1.00

  If you paid $1.54 for every 250 g ofNaHCO₃, how much would you be paying for each formula unit?
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  Demand for physician office visits

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  An individual’s demand for physician office visits per year is Q = 10  (1/20)P, where P is the price of an office visit. The marginal cost of producing an office visit is $120.

  (a) individuals pay full price for obtaining medical services, how many office visits will they make per year?

  (b) If individuals must pay only a $20 copayment for each office visit, how many office visits will they make per year?

  (c) What is the deadweight loss to society associated with not charging individuals for the full cost of their health care? Draw the supply- demand graph and mark the deadweight loss.
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  The Car Loan Alternatives

  $5.00

  This issue has three parts.

   You are considering the purchase of new car. You have negotiated with the salesperson at the dealership and you can purchase the vehicle for $30,000. You have $8,000 that you can use as a down payment.

   Prior to going into the dealership, you have set an absolute limit of $375 for the amount of monthly payments that you can make on the car. You are willing to finance over five years but you cannot exceed the payment of $375 per month. The dealer is willing to offer you financing at an annual rate of 6.5% for a 5-year loan. The dealer is willing to offer 5.5% financing on a 4-year loan.

  CalculatorWeb’s loan calculator lets you specify any single item to calculate if the other four variables are specified. The value should be entered as whole numbers without commas.

        1. Can you meet your payment restriction and finance the amount required for the car?

      2. What is the maximum amount that you can borrow to meet your payment restriction if the loan is to be paid off in 5 years?

      3. Suppose that you are limited to paying $375 per month but you want to pay the loan off in 4 years and not 5 years. What is the maximum amount that you can borrow
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  Financial Analysis of DPR Construction Inc. Case Study

  $20.00

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  The Final Project will involve applying the concepts learned in class to an analysis of a company using data from its annual report. Using the concepts from this course, you will analyze the strengths and weaknesses of the company and write a report either recommending or not recommending purchase of the company stock.

  Research Tip: The Mergent database in the Ashford University Library contains company profiles and financial information for publicly traded companies and their competitors. To access this database enter the Ashford Library and select Find Articles and More in the top menu panel. Next, select Databases A-Z and go to section M for Mergent. For help with using Mergent, use Mergent Online Quick Tips.

  For help with reading an annual report access this handy guide from Money Chimp.

  The completed report should include:

  1.       An introduction to the company, including background information.

  2.       A complete and thorough financial statement review.

  3.       Pro Forma financial statements (Balance Sheet and Income Statement) for the next fiscal year, assuming a 10 percent growth rate in sales and Cost of Goods Sold (COGS) for the next year.

  4.       Complete ratio analysis for the last fiscal year using at least two ratios from each of the following categories:

  1.       Liquidity

  2.       Financial leverage

  3.       Asset management

  4.       Profitability

  5.       Market value

  5.       A calculation of Return on Equity (ROE) using the DuPont system.

  6.       Assessment of management performance by calculating Economic Value Added (EVA).

  7.       A synopsis of your findings, including your recommendations and rationale for whether or not to purchase stock from this company.
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  Essay: Tranter, Inc., is considering a project

  $10.00

  Essay

  90. Tranter, Inc., is considering a project that would have a ten-year life and would require a $1,500,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:

  All of the above items, except for depreciation, represent cash flows. The company’s required rate of return is 12%.

  Required:

  (a.) Compute the project’s net present value.

  (b.) Compute the project’s payback period.

  (c.) Compute the project’s simple rate of return.

  91. Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision as to which system is more desirable:

  Required:

  (a.) What is the City of Paranoya’s net present value for the decision described above? Use the total cost approach.

  (b.) Should the City of Paranoya purchase the new system or keep the old system?

  92. The following data concern an investment project:

  The working capital will be released for use elsewhere at the conclusion of the project.

  Required:

  Compute the project’s net present value.

  93. Five years ago, Joe Sarver purchased 600 shares of 9%, $100 par value preferred stock for $75 per share. Sarver received dividends on the stock each year for five years, and finally sold the stock for $90 per share. Instead of purchasing the preferred stock, Sarver could have invested the funds in a money market certificate yielding a 16% rate of return.

  Required:

  Determine whether or not the preferred stock provided at least the 16% rate of return that could have been received on the money market certificate.

  94. Big Blue Co. is considering three investment opportunities having cash flows as described below:

  Project I would require an immediate cash outlay of $10,000 and would result in cash savings of $3,000 each year for 8 years.

  Project II would require cash outlays of $3,000 per year and would provide a cash inflow of $30,000 at the end of 8 years.

  Project III would require a cash outlay of $10,000 now and would provide a cash inflow of $30,000 eight years from now.

  Required:

  If Big Blue has a required rate of return of 14%, determine which, if any, of the three projects is acceptable. Use the NPV method.

  95. Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo which will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $85,000 per year for each of the 10 years. Axillar’s discount rate is 16%.

  Required:

  (a.) What is the net present value of this investment opportunity?

  (b.) Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo?

  96. Lajara Inc. has provided the following data concerning a proposed investment project:

  The company uses a discount rate of 13%.

  Required:

  Compute the net present value of the project.

  97. Burba Inc. is considering investing in a project that would require an initial investment of $200,000. The life of the project would be 8 years. The annual net cash inflows from the project would be $60,000. The salvage value of the assets at the end of the project would be $30,000. The company uses a discount rate of 17%.

  Required:

  Compute the net present value of the project.

  98. Grossett Corporation has provided the following data concerning a proposed investment project:

  The company uses a discount rate of 10%. The working capital would be released at the end of the project.

  Required:

  Compute the net present value of the project.

  99. Woolfolk Corporation is considering investing $210,000 in a project. The life of the project would be 9 years. The project would require additional working capital of $46,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $42,000. The salvage value of the assets used in the project would be $32,000. The company uses a discount rate of 17%.

  Required:

  Compute the net present value of the project.

  100. Swaggerty Company is considering purchasing a machine that would cost $462,000 and have a useful life of 7 years. The machine would reduce cash operating costs by $115,500 per year. The machine would have no salvage value.

  Required:

  (a.) Compute the payback period for the machine.

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

  101. Alesi Company is considering purchasing a machine that would cost $243,600 and have a useful life of 8 years. The machine would reduce cash operating costs by $76,125 per year. The machine would have a salvage value of $60,900 at the end of the project.

  Required:

  (a.) Compute the payback period for the machine.

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

  102. Yeung Corporation is considering the purchase of a machine that would cost $330,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $33,000. The machine would reduce labor and other costs by $86,000 per year. The company requires a minimum pretax return of 12% on all investment projects.

  Required:

  Determine the net present value of the project. Show your work!

  103. The management of Glasco Corporation is considering the purchase of a machine that would cost $270,000, would last for 8 years, and would have no salvage value. The machine would reduce labor and other costs by $63,000 per year. The company requires a minimum pretax return of 18% on all investment projects.

  Required:

  Determine the net present value of the project. Show your work!

  104. Lovan, Inc., is considering the purchase of a machine that would cost $450,000 and would last for 8 years, at the end of which, the machine would have a salvage value of $63,000. The machine would reduce labor and other costs by $76,000 per year. Additional working capital of $3,000 would be needed immediately, all of which would be recovered at the end of 8 years. The company requires a minimum pretax return of 8% on all investment projects.

  Required:

  Determine the net present value of the project. Show your work!

  105. Dimpson Corporation is considering the following three investment projects:

  Required:

  Rank the investment projects using the profitability index. Show your work!

  106. The management of Grayer Corporation is considering the following three investment projects:

  The only cash outflows are the initial investments in the projects.

  Required:

  Rank the investment projects using the profitability index. Show your work!

  107. Flamio Corporation is considering a project that would require an initial investment of $210,000 and would last for 6 years. The incremental annual revenues and expenses for each of the 6 years would be as follows:

  At the end of the project, the scrap value of the project’s assets would be $24,000.

  Required:

  Determine the payback period of the project. Show your work!

  108. The management of Sobus Corporation is considering a project that would require an initial investment of $458,000 and would last for 9 years. The annual net operating income from the project would be $58,000, including depreciation of $48,000. At the end of the project, the scrap value of the project’s assets would be $26,000.

  Required:

  Determine the payback period of the project. Show your work!

  109. Shiffler Corporation is contemplating purchasing equipment that would increase sales revenues by $246,000 per year and cash operating expenses by $133,000 per year. The equipment would cost $275,000 and have a 5 year life with no salvage value. The annual depreciation would be $55,000.

  Required:

  Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!

  110. The management of Moya Corporation is investigating purchasing equipment that would cost $336,000 and have an 8 year life with no salvage value. The equipment would allow an expansion of capacity that would increase sales revenues by $288,000 per year and cash operating expenses by $164,000 per year.

  Required:

  Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!

  111. Hinck Corporation is investigating automating a process by purchasing a new machine for $520,000 that would have an 8 year useful life and no salvage value. By automating the process, the company would save $134,000 per year in cash operating costs. The company’s current equipment would be sold for scrap now, yielding $22,000. The annual depreciation on the new machine would be $65,000.

  Required:

  Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!

  112. The management of Kleppe Corporation is investigating automating a process by replacing old equipment by a new machine. The old equipment would be sold for scrap now for $19,000. The new machine would cost $180,000, would have a 9 year useful life, and would have no salvage value. By automating the process, the company would save $30,000 per year in cash operating costs.

  Required:

  Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!
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  Capital Budgeting Decisions: True/False Answers

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  1. Both the net present value method and the internal rate of return method can be used as a screening tool in capital budgeting decisions.

  2. When considering a number of investment projects, the project that has the best payback period will also always have the highest net present value.

  3. When discounted cash flow methods of capital budgeting are used, the working capital required for a project is ordinarily counted as a cash outflow at the beginning of the project and as a cash inflow at the end of the project.

  4. Discounted cash flow techniques automatically provide for recovery of initial investment.

  5. When computing the project profitability index of an investment project, the investment required will include any investment made in working capital at the beginning of the project.

  6. If investment funds are limited, the net present value of one project should not be compared directly to the net present value of another project unless the initial investments in these projects are equal.

  7. In calculating payback where new equipment is replacing old equipment, any salvage value to be received on disposal of the old equipment should be deducted from the cost of the new equipment.

  8. In the payback method, depreciation is added back to net operating income when computing the net annual cash flow.

  9. The simple rate of return method is desirable because of its simplicity and the fact that it takes the time value of money into account.

  10. The present value of a cash flow will never be greater than the future dollar amount of the cash flow.