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1) A company can buy a machine that is expected to have a three-year life and a
$30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a
$200,000 after-tax net income to be received at the end of each year. If a table of
present values of 1 at 12% shows values of 0.8929 for one year, 0.7972 for two years,
and 0.7118 for three years, what is the net present value of the cash flows from the
investment, discounted at 12%?
2) A company must decide between scrapping or rebuilding units that do not pass
inspection. The company has 15,000 such units that cost $6 per unit to manufacture.
The units were built to satisfy a special order, which must still be satisfied if the
defective units are scrapped. The units can be sold as scrap for $2.50 each or they can
be reworked for $4.50 each and sold for the full price of $9.00 each. If the units are sold
as scrap, the company will have to build 15,000 replacement units and sell them at the
full price.
Required:
(1) What is the net return from selling the units as scrap?
(2) What is the net return from reworking and selling the units?
(3) Should the company sell the units as scrap or rework them?
3) Tom Pines decided to open a bed and breakfast in his hometown. Prepare journal
entries to record the following transactions.
4) What are the five usual steps involved in the preparation of the statement of cash
flows?
5) Define the foreign exchange rate between two currencies. Explain its effect on
business transactions conducted in a foreign currency.
6) A company has $100,000 of 10% noncumulative, nonparticipating, preferred stock
outstanding, and $150,000 of common stock outstanding. In the company's first year of
operation, no dividends were paid, but during the second year, it paid cash dividends of
$25,000. Compute the dividends to be distributed to (1) preferred shares and (2)
common shares.
7) Explain how held-to-maturity debt securities are accounted for at and after
acquisition and how they are reported in the financial statements.
8) The _______________________ is a record containing all accounts used by a
company.
