Question

Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:

Project Soup Project Nuts
Initial investment $400,000 $600,000
Annual net income 30,000 46,000
Net annual cash inflow 110,000 146,000
Estimated useful life 5 years 6 years
Salvage value -0- -0-
The company requires a 10% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
5 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111
The net present value for Project Nuts is
QUESTION 2:
Benet Division of United Refinery Company's operating results include: controllable margin, $200,000; sales $2,200,000; and operating assets, $800,000. The Benet Division's ROI is 25%. Management is considering a project with sales of $100,000, variable expenses of $60,000, fixed costs of $40,000; and an asset investment of $150,000. Should management accept this new project?
A) Yes, since ROI will increase.
B) No, since ROI will be lowered.
C) Yes, since additional sales always mean more customers.
D) No, since loss will be incurred.
QUESTION 3:
The standard number of hours that should have been worked for the output attained is 10,000 direct labor hours and the actual number of direct labor hours worked was 10,500. If the direct labor price variance was $10,500 unfavorable, and the standard rate of pay was $12 per direct labor hour, what was the actual rate of pay for direct labor?
QUESTION 4:
A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:
Variable
Fixed
Indirect materials $120,000 Depreciation $50,000
Indirect labor 160,000 Taxes 10,000
Factory supplies 20,000 Supervision 40,000
A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of:__________
QUESTION 5:
Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return.
Present Value of an Annuity of 1
Period 8% 9% 10% 11% 12% 15%
6 4.623 4.486 4.355 4.231 4.111 3.784
What is the approximate profitability index associated with this equipment?

Answer 1

1. $35,830

2. B) No, since ROI will be lowered.

3. $13 per DL

Step-by-step explanation:

1. Present value of inflows = $146,000*Present value of annuity factor (10%,6)

Present value of inflows = $146,000 * 4.355

Present value of inflows = $635,830

Net present value = Present value of inflows - Present value of outflows

Net present value = ($635,830 - $600,000)

Net present value = $35,830.

So, the net present value for Project Nuts is $35,830.

2. ROI = Net income / Investment

ROI = (100000-60000-40000) / 150000

ROI = 0%

The ROI required is 25%. Hence, the new project should not be accepted as ROI will be lowered.

3. Direct labor price Variance = Actual hours (AR - SR)

$10,500 = 10,500 (AR - $12)

$10,500 = 10,500 AR - $126,000

AR = $10,500 + $126,000 /10,500

AR = $13 per direct labor hour.

So, the actual rate of pay for direct labor is $13 per DLH.