Weygandt, Accounting Principles, 12e,
Chapter Twenty Six
Solutions to Challenge Exercises
Solution to CE26-1
(a)
Reject
Order
Accept
Order
Net Income
Increase
(Decrease)
Revenues (15,000 X $7.60)
Cost of goods sold
Operating expenses
Net income
$0
0
0
$0
$114,000
78,000
31,000
$ 5,000
(1)
(2)
($114,000)
( (78,000)
( (31,000)
($ 5,000)
because incremental revenues exceed incremental expenses by $5,000.
(c)
Reject
Order
Accept
Order
Net Income
Increase
(Decrease)
Revenues (20,000 X $7.60)
Cost of goods sold (20,000 x $5.20)
$0
0
$152,000
104,000
($152,000)
((104,000)
Solution to CE26-2
(a)
Project
Capital
Investment
÷
Net Annual Cash
Flows*
=
Internal
Rate of
Return
Factor
Closest
Discount
Factor
Internal
Rate of
Return
$240,000
$270,000
$280,000
÷
÷
÷
($16,500 + $40,000)
($20,400 + $30,000)
($17,300 + $40,000)
=
=
=
4.23054
5.32825
4.86842
(b) The acceptable projects are 32A and 33A because their rates of return are equal to or
greater than the 11% required rate of return.
(c)
Project
Capital
Investment
÷
Net Annual Cash
Flows*
=
Cash
Payback
Period
In Years
$240,000
$270,000
$280,000
÷
÷
÷
($16,500 + $40,000)
($20,400 + $30,000)
($17,300 + $40,000)
=
=
=