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Question: Refer to Exhibit 12–2. Is the

Refer to Exhibit 12–2. Is the return on this investment proposal exactly 14%, more than 14%, or less than 14%? Explain. Exhibit 12–2 The Net Present Value Method—An Extended Example
Refer to Exhibit 12–2. Is the return on this investment proposal exactly 14%, more than 14%, or less than 14%? Explain.

Exhibit 12–2
The Net Present Value Method—An Extended Example





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$200,000 125,000 Sales revenues Less cost of goods sold. Less out-of-pocket costs for salaries, advertising, etc. 35,000 Annual net cash inflows.. $ 40,000 Amount of Cash Flow 14% Factor Present Value of Cash Flows $ (60,000) (100,000) (2,960) Item Year(s) Purchase of equipment Working capital needed. Overhaul of equipment. Annual net cash inflows from sales Now 1.000 $(60,000) S(100,000) $(5,000) Now 1.000 4 0.592* of the product line. Salvage value of the equipment Working capital released 3.433t $40,000 $10,000 1-5 137,320 5,190 0.519* $100,000 0.519* 51,900 $ 31,450 Net present value. *From Exhibit 12B-1 in Appendix 12B. tFrom Exhibit 12B-2 in Appendix 12B.



> The following selected data are taken from the comparative financial statements of Yankee Curling Club. The club prepares its financial statements using the accrual basis of accounting. Dues are billed to members based upon their use of the clubâ&

> What do these classes of ratios measure? (a) Liquidity ratios. (b) Profitability ratios. (c) Solvency ratios.

> Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data (in millions of dollars) for a recent year follow. Instructions (a) Compute working capital and the current ratio at the beginning of the year and at the end

> As a financial analyst in the planning department for Erin Industries, Inc., you must develop ratios from the comparative financial statements. This information is to be used to convince creditors that, despite a slight decline in sales, Erin Industries,

> The following reconciling items are applicable to the bank reconciliation for Forde Co. Indicate how each item should be shown on a bank reconciliation. (a) Outstanding checks. (b) Bank debit memorandum for service charge. (c) Bank credit memorandum for

> Given the characteristics of useful accounting information, complete each of the following statements: (a) For information to be _____, it should have predictive and confirmatory value. (b) _____ means that information accurately depicts what really happ

> Tom Dawes, the founder of Footwear Inc., needs to raise $500,000 to expand his company’s operations. He has been told that raising the money through debt will increase the riskiness of his company much more than issuing stock. He doesn’t understand why t

> Contrast the straight-line method and the units-of-activity method in relation to (a) useful life and (b) the pattern of periodic depreciation over useful life.

> Branden Doyle is reviewing the principle of segregation of duties. What are the two common applications of this principle?

> The Triquel Theater Inc. was recently formed. It began operations in March 2017. The Triquel is unique in that it will show only triple features of sequential theme movies. On March 1, the ledger of The Triquel showed Cash $16,000, Land $38,000, Building

> Tabitha Andes was just hired as the assistant treasurer of Southside Stores, a specialty chain store company that has nine retail stores concentrated in one metropolitan area. Among other things, the payment of all invoices is centralized in one of the d

> The financial statements of Louis Vuitton are presented in Appendix F. Instructions for accessing and using the company’s complete annual report, including the notes to its financial statements, are also provided in Appendix F. Instructions Visit Louis V

> Wells Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Wells’ chemical pesticides. During the coming year, Wells will have environmentally safe and competitive re

> Ken McCall believes that the allocation of cost of goods available for sale should be based on the actual physical flow of the goods. Explain to Ken why this may be both impractical and inappropriate.

> The following comparative information is available for Rose Company for 2017. Instructions (a) Determine net income under each approach. Assume a 30% tax rate. (b) Determine net cash provided by operating activities under each approach. Assume that all s

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> These financial statement items are for Fairview Corporation at year-end, July 31, 2017. Salaries and wages payable……………………………$ 2,080 Salaries and wages expense……………………………. 57,500 Supplies expense……………………………………………..15,600 Equipment………………………………………………………18

> A friend of yours, Saira Ortiz, recently completed an undergraduate degree in science and has just started working with a biotechnology company. Saira tells you that the owners of the business are trying to secure new sources of financing which are neede

> The July 6, 2011, edition of the Wall Street Journal Online includes an article by Michael Rapoport entitled “U.S. Firms Clash Over Accounting Rules.” The article discusses why some U.S. companies favored adoption of International Financial Reporting Sta

> In the corner grocery store, all sales clerks make change out of one cash register drawer. Is this a violation of internal control? Why?

> The accompanying chart shows the qualitative characteristics of useful accounting information. Fill in the blanks. Enhancing Qualities Fundamental Usefulness Qualities Relevance () (a) (g) (b) (h) (c) Understandability Faithful Representation (d) Neu

> Name ratios useful in assessing (a) liquidity, (b) solvency, and (c) profitability.

> Indicate whether the following statements are true or false. 1. A merchandising company reports gross profit but a service company does not. 2. Under a periodic inventory system, a company determines the cost of goods sold each time a sale occurs. 3. A s

> Melanie is studying for the next accounting examination. She asks your help on two questions: (a) What is salvage value? (b) How is salvage value used in determining depreciable cost under the straight-line method? Answer Melanie’s questions.

> This trial balance of Washburn Co. does not balance. Each of the listed accounts has a normal balance per the general ledger. An examination of the ledger and journal reveals the following errors: 1. Cash received from a customer on account was debited

> On November 1, 2017, the following were the account balances of Soho Equipment Repair. During November, the following summary transactions were completed. Nov 8 Paid $1,220 for salaries due employees, of which $600 is for November and $620 is for Octobe

> On numerous occasions, proposals have surfaced to put the federal government on the accrual basis of accounting. This is no small issue because if this basis were used, it would mean that billions in unrecorded liabilities would have to be booked and the

> What is the primary basis of accounting for inventories?

> Jeters Company reports the following for the month of June. Instructions (a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost. (Round average unit cost to three decimal places.) (b) Which

> Solar Electronics has enjoyed tremendous sales growth during the last 10 years. However, even though sales have steadily increased, the company’s CEO, Dana Byrnes, is concerned about certain aspects of its performance. She has called a

> (a) What is the primary source document for recording (1) cash sales and (2) credit sales? (b) Using XXs for amounts, give the journal entry for each of the transactions in part (a), assuming perpetual inventory.

> Suppose the following information is available for Callaway Golf Company for the years 2017 and 2016. (Dollars are in thousands, except share information.) There were 73,139,000 shares outstanding at the end of 2015. Instructions (a) What was the compa

> The key to successful business operations is effective inventory management.” Do you agree? Explain.

> Selected financial data of two competitors, Target and Wal-Mart, are presented here. (All dollars are in millions.) Suppose the data were taken from the 2017 financial statements of each company. Instructions For each company, compute these values and ra

> Suppose the following items were taken from the 2017 financial statements of Texas Instruments, Inc. (All dollars are in millions.) Instructions Prepare a classified balance sheet in good form as of December 31, 2017. Common stock $2,826 Accumulated

> Tott Company has the following internal control procedures over cash disbursements. Identify the internal control principle that is applicable to each procedure. (a) Company checks are pre numbered. (b) The bank statement is reconciled monthly by an inte

> Indicate whether each statement is true or false. (a) GAAP is a set of rules and practices established by accounting standard-setting bodies to serve as a general guide for financial reporting purposes. (b) Substantial authoritative support for GAAP usua

> What types of receivables does Apple report on its balance sheet? Does it use the allowance method or the direct write-off method to account for uncollectibles?

> What principles of internal control apply to most businesses?

> This is the trial balance of Lacey Company on September 30. The October transactions were as follows. Oct. 5 Received $1,300 in cash from customers for accounts receivable due. 10 Billed customers for services performed $5,100. 15 Paid employee salaries

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> Why isn’t accounting net income used in the net present value method of making capital budgeting decisions?

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> A company seeking a line of credit at a bank was turned down. Among other things, the bank stated that the company’s 2 to 1 current ratio was not adequate. Give reasons why a 2 to 1 current ratio might not be adequate.

> If a stock’s market value exceeds its book value, then the stock is overpriced. Do you agree? Explain.

> Sharkey’s Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey, the owner, would like to construct a water slide on one portion of his property. Mr. Sharkey has g

> The president of a plastics company was quoted in a business journal as stating, “We haven’t had a dollar of interest-paying debt in over 10 years. Not many companies can say that.” As a stockholder in this company, how would you feel about its policy of

> What is meant by the term financial leverage?

> Would you expect a company in a rapidly growing technological industry to have a high or low dividend payout ratio?

> Assume that two companies in the same industry have equal earnings. Why might these companies have different price-earnings ratios? If a company has a price-earnings ratio of 20 and reports earnings per share for the current year of $4, at what price wou

2.99

See Answer