Page 1 of 2

MANAGERIAL ACCOUNTING PART II

CAPITAL BUDGETING
Problem 1
The CCC Corporation made availale the follo!ing data a" re#$e"ted%
Total intere"t pa&ment" on ond" pa&ale
P'()(((
Preferred "to*+ dividend" ,()(((
Common -to*+ dividend"
,.)(((
Ann$al gro!th on *ommon "to*+ dividend ,/
Mar+et 0al$e" of%
Bond" Pa&ale P.(()(((
Common -to*+ 1(()(((
Preferred -to*+ ,(()(((2
Retained Earning" 3(()(((
Compan& Ta4 rate 1(/
-to*+holder"5 Marginal Ta4 Rate 6(/
RE7UIRED% Cal*$late the 8rm5" Co"t of Capital
Problem 2
The Graven Compan& i" planning to "pend P'()((( for a ma*hine !hi*h !ill e
depre*iated on a "traight line a"i" over ten period9 The ma*hine !ill generate
additional *a"h reven$e" of P3,)((( a &ear9 Graven !ill in*$r additional *o"t" for
depre*iation9 The In*ome Ta4 Rate i" 1:/
RE7UIRED%
39 Determine the net in*ome after ta49
,9 Determine the A**o$nting Rate of ret$rn ;ARR<
19 Determine the after ta4 ann$al *a"h =o!9
.9 Comp$te the pa&a*+ period and the pa&a*+ re*ipro*al
Problem 3
>erman Compan& a*#$ired an a""et at a *o"t of P.')'((9 It had an e"timated
$"ef$l life of ten &ear"9 Ann$al after ta4 *a"h ene8t" are e"timated at P3()((( at
the end of ea*h &ear9 The follo!ing amo$nt" appear in the intere"t tale for the
pre"ent val$e of an ann$it& of p3 at &ear?end for ten &ear"9
3'/ ? .9@. 3@/ ? .9.A ,(/ ? .93A
Re#$ired% Determine the ma4im$m intere"t rate ;time adB$"ted rate of ret$rn< that
*o$ld e paid for the *apital emplo&ed over the life of thi" a""et !itho$t to"") on
thi" proBe*t9
Problem 4
NP0 Compan& i" *on"idering to $& a ne! ma*hine !hi*h *o"t P:()(((9 It !ill e a
loor "aving inve"tment !hi*h !ill red$*e pa&roll & P31):(( per &ear9 It" $"ef$l life
i" @ &ear" and it !ill have Cero "alvage val$e9 A minim$m de"ired rate of ret$rn of
.@/ i" $"ed for *apital inve"tment de*i"ion"9 Information on pre"ent val$e fa*tor"
i" a" follo!"9
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Pre"ent 0al$e of P3 for @ period" at 3@/ 9,''
Pre"ent 0al$e of an ann$it& of P3 for A period" .9(6@
-ho$ld the ma*hine e a*#$iredD
Problem 5
0irginia Compan& inve"ted in a fo$r?&ear proBe*t9 The *ompan&5" e4pe*ted rate of
ret$rn i" 3(/9 Additional information on the proBe*t i" a" follo!"%
Ca"h In=o! from Operation" Pre"ent 0al$e
Eear Net of In*ome Ta4e" of P3 at 3(/
?????? ??????????????????????????????????????
??????????????????
3 P.()((( 9A(A
, ..)((( 9@,'
1 .@)((( 96:3
. :,)((( 9'@1
A""$ming a po"itive Net Pre"ent 0al$e of P3()(((9 Determine the amo$nt of the
original inve"tment9
Problem 6
The Cap Compan& i" *on"idering the repla*ement of Ma*hine A !ith Ma*hine
B that !ill *o"t P3'()((( and !ill re"$lt in ann$al "aving" of P.()((( efore in*ome
ta4e" e*a$"e of the e4pe*ted in*rea"e in operating eF*ien*&9 Ma*hine B ha" an
e"timated $"ef$l life of 3( &ear" and "alvage of P3()(((9 Ma*hine A ha" a oo+
val$e of P3')((( and a di"po"al val$e of P,()((( no!9
-traight?Line depre*iation i" $"ed and the *ompan& ha" an average in*ome ta4 rate
of 1:/9 The minim$m de"ired rate of ret$rn on thi" inve"tment i" ,(/9 The
pre"ent val$e of an ordinar& ann$it& of P3 in arrear" for 3( period" at ,(/ i" .93A,9
The pre"ent val$e of P3 for 3( period" at ,(/ i" 9(3',9
Re#$ired%
39 Determine the net inve"tment9
,9 Determine the ann$al *a"h =o! net of in*ome ta49
19 Ghat i" the net pre"ent val$e of the inve"tmentD
END