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Question: The net present value method is the


The net present value method is the preferred method for capital budgeting decisions. Therefore, managers will always use it.” Do you agree? Explain.



> Performance Auto Company operates a New Car Division (that sells high-performance sports cars) and a Performance Parts Division (that sells performance improvement parts for family cars). Some division financial measures for 2015 are as follows: Requir

> YardScapes Corporation manufactures furniture in several divisions, including the Patio Furniture division. The manager of the Patio Furniture division plans to retire in two years. The manager receives a bonus based on the division’s ROI, which is curre

> Summit Equipment specializes in the manufacture of medical equipment, a field that has become increasingly competitive. Approximately two years ago, Ben Harrington, president of Summit, decided to revise the bonus plan (based, at the time, entirely on op

> Ohms Motor Company makes electric cars and has only two products, the Simplegreen and the Superiorgreen. To produce the Simplegreen, Ohms Motor employed assets of $13,500,000 at the beginning of the period, and $13,400,000 of assets at the end of the per

> The Outdoor Sports Company produces a wide variety of outdoor sports equipment. Its newest division, Golf Technology, manufactures and sells a single product: AccuDriver, a golf club that uses global positioning satellite technology to improve the accura

> Learning World Inc. has two divisions: Test Preparation and Language Arts. Results (in millions) for the past three years are partially displayed here: Required: 1. Complete the table by filling in the blanks. 2. Use the DuPont method of profitability

> List and briefly describe the five major categories of cash flows included in capital investment projects.

> Return on investment (ROI) is often expressed as follows: Required: 1. What advantages are there in the breakdown of the computation into two separate components? 2. Fill in the following blanks: After filling in the blanks, comment on the relative p

> A number of terms are listed below: Required: Select the terms from the above list to complete the following sentences. Governance, or the management stewardship of assets management does not own, according to laws and regulations is more closely scrut

> In 2015, the Mandarin Division of Key Products Corporation generated an operating income of $3,000,000 from $20,000,000 of sales revenues and using assets worth $15,000,000. Mandarin managers are evaluated and rewarded on the basis of ROI defined as oper

> Home Appliance (HA) builds coffeemakers and battery-powered small tools. For a long time, HA held a reputation for strong, durable, and reliable appliances. This reputation began to decline, however, when increased competition forced HA to cut costs, and

> Wilcox is a familyowned company that has been making microwaves for almost 20 years. The company’s production line includes 10 models, ranging from a basic model to a deluxe stainless steel model. Most of its sales are through independe

> Francesca Freed wants a Burg-NFry franchise. The buy-in is $500,000. Burg-N-Fry headquarters tells Francesca that typical annual operating costs are $160,000 (cash) and that she can bring in “as much as” $260,000 in cash revenues per year. BurgN-Fry head

> The Allison Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit centre. Each division manager has been delegated full author

> Industrial Diamonds, Inc., based in Montreal, Quebec, has two divisions: â–  South African mining division, which mines a rich diamond vein in South Africa. â–  Canadian processing division, which polishes raw di amonds fo

> The Handit Company manufactures telecommunications equipment at its plant in Ottawa, Ontario. The company has marketing divisions throughout the world. A Handit marketing division in Vienna, Austria, imports 1,000 units of Product 4A36 from Canada. The f

> Quest Motors Inc. operates as a decentralized multidivision company. The tivo division of Quest Motors purchases most of its airbags from the airbag division. The airbag division’s incremental cost for manufacturing the airbags is $90 per unit. The airba

> The trouble with discounted cash flow techniques is that they ignore depreciation costs.” Do you agree? Explain.

> TECA Halifax makes kids’ bicycles. The frames division makes and paints the frames and supplies them to the assembly division where the bicycles are assembled. TECA is a successful and profitable corporation that attributes much of its success to its dec

> The Orsilo Corporation makes and sells 10,000 multisystem music players each year. Its assembly division purchases components from other divisions of Orsilo or from external suppliers and assembles the multisystem music players. In particular, the assemb

> User Friendly Computer Inc., with headquarters in Nepean, Ontario, manufactures and sells a premium desktop computer system. User Friendly has three divisions, each of which is located in a different country: a. China division—manufactu

> Fenster Corporation manufactures windows with wood and metal frames. Fenster has three departments: glass, wood, and metal. The glass department makes the window glass and sends it to either the wood or metal department, where the glass is framed. The wi

> Berry Chemicals consists of seven independent operating divisions. The operating divisions are assisted by a number of support groups, such as R&D, human resources, and environmental management. The environmental-management group consists of 20 environme

> Greystone Corporation manufactures stone tiles for kitchen counters and floors. Its strategy is to manufacture high-quality products at reasonable prices, and to rapidly deliver products following sales. Greystone sells to both hardware stores and contra

> A number of terms are listed below: Required: Select the terms from the above list to complete the following sentences. The CRA constrains global transfer-pricing choices, and provincial tax authorities constrain the interprovincial transfer-pricing ch

> Anna’s Bakery plans to purchase a new oven with an estimated useful life of four years. The estimated pretax cash flows for the oven are as shown in the table that follows, with no anticipated change in working capital. Annaâ&#128

> StrengthCo is considering an investment of $254,200 in special tools, with a life expectancy of four years and a residual price of $24,000. The tools would be purchased on December 31, 2016, and would enable StrengthCo to manufacture drill bits to very h

> KopiPro is considering the purchase of a photocopying machine for $5,500 on December 31, 2016. It has a useful life of five years and a zero residual disposal price. Depreciation will be applied on a straight-line basis. The cash operating savings are ex

> Describe the accrual accounting rate of return method. What are its main strengths and weaknesses?

> Microdot Inc. sells and distributes computer networking equipment; its overall margin on sales is 10%. Microdot has customers of two kinds: low and high volume. Lowvolume customers on average generate sales for $5,000 per year and the average tenure is f

> Edgeley Inc., a logistics operator located in Concord, Ontario, is considering replacing one of its tractor trailers (informally known as a 53’ truck). The truck was purchased for $64,800 two years ago, has a current book value of $45,600, and a remainin

> Windsor Hospital is a non-tax paying not for profit entity. It estimates that it can save $28,000 a year in cash operating costs for the next 10 years if it buys a special-purpose eye-testing machine at a cost of $110,000. No terminal disposal value is e

> Edilcan Inc. has been offered an automated special-purpose welder (robot) for $60,000. The machine is expected to have a useful life of eight years with a terminal disposal price of $12,000. Savings in cash operating costs are expected to be $15,000 per

> Homer Inc. plans to purchase a new rendering machine for its animation facility. The machine costs $102,500 and is expected to have a useful life of eight years, with a terminal disposal value of $22,500. Savings in cash operating costs are expected to b

> Muskoka Landscaping Ltd. is planning to buy equipment costing $25,000 to improve its services. The equipment is expected to save $8,000 in cash operating costs per year. Its estimated useful life is five years, and it will have zero terminal disposal pri

> Century Lab plans to purchase a new centrifuge machine for its Manitoba facility. The machine costs $137,500 and is expected to have a useful life of eight years, with a terminal disposal value of $37,500. Savings in cash operating costs are expected to

> Presentation Graphics prepares slides and other aids for individuals making presentations. It estimates it can save $42,000 a year in cash operating costs for the next five years if it buys a special-purpose colour-slide workstation at a cost of $90,000.

> Andrews Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $6,000,000 for the year. Lori Bart, staff analyst at Andrews, is preparing an analysis of the three pro

> New Bio Corporation is a rapidly growing biotech company that has a required rate of return of 12%. It plans to build a new facility in Mississauga, Ontario. The building will take two years to complete. The building contractor offered New Bio a choice o

> List and briefly describe each of the six parts in the capital budgeting decision process.

> Southern Cola is considering the purchase of a special-purpose bottling machine for $23,000. It is expected to have a useful life of four years with no terminal disposal value. The plant manager estimates the following savings in cash operating costs: Y

> Norberto Garcia, general manager of the Argentinean subsidiary of Innovation Inc., is considering the purchase of new industrial equipment to improve efficiency at its Cordoba plant. The equipment has an estimated useful life of five years. The estimated

> Panayiotis, the owner and manager of Micos Ltd., is evaluating the acquisition of new equipment needed to attend a new line of business. He has two alternatives: either buy two small machines or one large and more automatic machine: Required: 1. Determ

> Lethbridge Company runs hardware stores in Alberta. Lethbridge’s management estimates that if it invests $160,000 in a new computer system, it can save $60,000 in annual cash operating costs. The system has an expected useful life of five years and no te

> A number of terms are listed below: Select the terms from the above list to complete the following sentences. The goal of ________________ is to provide capacity in a planned and orderly manner that will match the predicted demand growth of the company

> Describe each of the levers of control and their interrelation with strategy.

> Explain the incentive problems that can arise when employees have to perform multiple tasks as part of their jobs.

> Explain the management accountant’s role in helping organizations design stronger incentive systems for their employees.

> Distinguish among measuring assets based on present value, current cost, and historical cost.

> Managers’ control of job projects generally focuses on four critical success factors.” Identify those factors.

> Residual income is not identical to ROI, although both measures incorporate income and investment into their computations.” Do you agree? Explain.

> What factors affecting ROI does the DuPont method highlight?

> Describe economic value added.

> Why should managers consider income tax issues when choosing a transfer-pricing method?

> What are the three general methods for determining transfer prices?

> Describe three criteria you would use to evaluate whether a management control system is effective.

> The Strubel Company currently makes as many units of Part No. 789 as it needs. David Lin, general manager of the Strubel Company, has received a bid from the Gabriella Company for making Part No. 789. Current plans call for Gabriella to supply 1,000 unit

> Fluffy Cupcake Company is considering expanding by buying a new (additional) machine that costs $42,000, has zero terminal disposal value, and has a 10-year useful life. It expects the annual increase in cash revenues from the expansion to be $23,000 per

> What are the six steps in designing an accounting-based performance measure?

> Give two examples of financial performance measures and two examples of nonfinancial performance measures.

> Tandy wanted to issue a check in payment of her rent, due June 1, before leaving on a vacation trip on May 15, but she did not have sufficient funds on deposit in her checking account. Her employer automatically deposits her paycheck to her bank on the l

> Hausen was planning an extensive trip to Europe and wanted to avoid carrying large sums of cash. a. Would you advise Hausen to carry certified checks? b. Would you advise Hausen to carry traveler’s checks? c. Would you advise Hausen to charge his purchas

> Neville had a checking account at her local bank. She wrote out a check to Shin, a maintenance worker, in payment for services he had provided. a. Is Neville the drawee? b. Is Shin the drawee? c. Is her bank the drawee?

> Bolena sold some valuable jewelry to McGovern, whom she had never met before. She was concerned about whether McGovern’s check was good and whether there were sufficient funds on deposit in McGovern’s account to cover it. a. Would a certified check relie

> Brown earned a significant income as a pilot for a major airline. Despite this high income, Brown ran into serious financial difficulties when she invested in a business owned by her brother that failed. Brown filed for bankruptcy under Chapter 13 to gai

> Travel Junction, a corporation, encounters financial difficulties and files for bankruptcy under Chapter 11. The bankruptcy court approves a reorganization plan to pay back creditors over time and begins monitoring the activities of the business. a. Must

> Chen had numerous debts from credit card bills, a home mortgage, and a loan resulting for a second automobile purchased on credit. He filed for bankruptcy under Chapter 7. Chen’s assets, in addition to his two automobiles, included a home, some rare coin

> Olav, a retired banker, served on the board of directors for a nationally prominent charitable organization. The local chapter of the charity discussed plans to purchase and relocate to a new building across town. Olav approached Mansfield, a close frien

> Felagi and MacWilliams agreed to open a restaurant selling pizza and sandwiches. The business was organized as a partnership, with each partner owning 50 percent and sharing profits and losses equally. The two partners also agreed that each would have ac

> Horvath opened a small convenience store, organizing the business as a sole proprietorship. Because she was concerned that she would not have sufficient financing, she borrowed $20,000 from Blaum, her brother-in-law. When the business began earning profi

> Distinguish among express, implied, and apparent authority.

> The Chalmers family lived in poverty. Despite their destitute condition, Mrs. Chalmers bought several articles of jewelry for herself and an expensive painting for their home. When the retailer attempted to collect payment, Mr. Chalmers refused to pay. T

> A shipper asked a truck driver to deliver a shipment of chemicals and to protect them from freezing while en route. The driver assured the shipper that the chemicals would be carried in heated trucks. When the shipper learned that the shipment had been d

> Peterman, a resident of Florida, sold a home in California to Oliveras. Peterman hired Fogelman, an attorney-at-law, to represent her at the real estate closing and provided Fogelman with a contract of agency, giving Fogelman the authority to sell the ho

> Pathek sold a pair of skis to Whelan, making no specific warranties or promises of any kind other than letting Whelan examine and try them. In fact, Pathek did not own the skis; he had only rented them. When the true owner claimed them, Whelan demanded h

> Liang was about to purchase an air-conditioning unit for her apartment at a closeout sale at Center City Appliance. The salesperson assured her that the unit was large enough to cool the apartment she described. The price was right, but she was nervous w

> Buynoski, the operator of a restaurant, served a dinner to Costas. Costas had nearly finished her soup when she found several metal chips in the bottom of her bowl. When Costas showed the chips to Buynoski, the restaurant owner was very apologetic and of

> Eamons offered to sell his sailboat, complete with boat trailer, to Fitzgerald for $12,000. Fitzgerald agreed to the offer, gave Eamons a deposit of $500, and said that he would pay the balance when he came back with his car to pick up the boat and trail

> Galen, a purchasing agent for Ziff Construction Company, agreed orally with Houk Lumber to purchase 800 double-hung vinyl windows. The agreed price was $40,000. When Ziff Construction lost its financial backing, it had to cancel its plans for the houses

> Miro, the owner of a supermarket, contracted with Market Supply Company for one complete checkout counter, including a cash register. After the counter was installed, but before the cash register was delivered, Market Supply Company demanded payment for

> Rios furnished Stern, a carpenter, with a set of sketches for a cabinet she wanted built. They orally agreed on a price of $1,000, the type of wood to be used, and the delivery date. Before Stern had begun work or obtained the necessary materials, Rios c

> Differentiate between the principal–agent and employer–employee relationships.

> Forell, a resident of Des Moines, purchased a nearly new Buick automobile from a seller in Cleveland for the unusually low price of $4,000. The seller explained that he was in town to take delivery of another automobile that he had just inherited from hi

> Fallon agreed in writing to purchase a used truck from Moonlit Motors with the understanding that a snowplow attachment would be added. When Fallon attempted to take delivery of the truck, he found that the plow attachment had not been added. He refused

> Hollander purchased a computer from a pawnshop for use in his real estate office. Several weeks later, Diem, one of Hollander’s customers, mentioned that the computer looked familiar and asked if he could examine it. After checking the underside of the m

> Crowley, a building contractor, ordered 500 bags of cement from Litvak Building Supply. It was agreed that Litvak would deliver to a building site, and title would pass when delivery was made. Before the bags of cement could be loaded on a delivery truck

> Chiu agreed to sell his custom-built sailboat to Graham for $60,000. Before delivery, Chiu received another offer for $68,000 and wrote to Graham that he had decided not to sell his boat after all. a. Can Graham obtain a decree of specific performance? b

> Scher, a homeowner, purchased a vacuum cleaner from a door-to-door salesperson. When the salesperson demonstrated the machine in her home, it seemed to work quite effectively. After signing the contract, she checked several consumer magazines at the publ

> Central City Garage Builders contracted with Morgan for the construction of a two-car garage and an attached greenhouse of similar size. The garage was built on schedule, but, because of a shortage of special materials, it appeared that the construction

> Bushek signed a contract with Aluminum Window Products Company to replace the windows and wooden window frames of his house with new ones made of aluminum. The salesperson asked Bushek to sign a “routine form” to help ensure that credit would be granted.

> Rodrigos, the leader of a rock-and-roll group, agreed to provide music for the annual Park College Marketing Club dinner dance. On the night of the dinner dance, however, another, very amateurish group showed up and said that Rodrigos had assigned the co

> Westerfield contracted with Bradley Building Company for the construction of a ranch house as a wedding gift for his daughter. Before construction began, Westerfield died and Bradley announced that he would not build the house. Westerfield’s daughter bro

> Differentiate among disclosed principal, partially disclosed principal, and undisclosed principal.

> Becker, a college student, recognized that she was financially very dependent upon her widowed mother’s financial support while she was in college. To protect against the risk of financial loss in the event of her mother’s death, Becker persuaded her mot

> Chang, a florist, contracted with Torres to provide delivery services in the local community. Torres discovered that his vehicles did not have the equipment to handle the work well, so he asked Chang if another delivery service, Rush Truk, would be accep

> Safran, the owner of an automobile repair shop, placed an order for an engine diagnostic machine from the Mountain Range Equipment Company. The salesperson, Rubinstein, orally assured Safran that a number of test programs for both gasoline and diesel eng

> Garcia, an independent computer consultant, was orally engaged by the Eastern Institute of Management, a publisher of management newsletters, to set up an office computer network that included needs assessment, employee training, and a desktop publishing

> Coursey orally agreed to sell three acres of land to Oulette for $8,000. After Oulette had paid the $8,000 and the transfer had been officially recorded, Coursey received an offer of $9,000 for the land from another prospective buyer. Hoping to set aside

> Rogan, who had worked for eight years as an electrician’s helper, tried several times to pass the state-required electrician’s test, but he failed each time. Still, he felt that he knew enough about his trade that he could perform the work of an electric

> Pickens was one of a group of four army veterans who met once a month to play poker. On one occasion, Pickens lost more than $1,000 and refused to pay, claiming that gambling debts are uncollectible. The winner claimed that because the state had legalize

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