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The head of the corporate tax division of a major public relations firm has proposed investing $295,000 in personal computers for the staff. The useful life and recovery period for the computers are both 5 years. The firm used MACRS depreciation. There is no terminal salvage value. Labor savings of $125,000 per year (in year-zero dollars) are expected from the purchase. The income tax rate is 45% and the after tax required rate of return is 20%, which includes a 4% element attributable to inflation.
1) Compute the NPV of the computers. Use the nominal required rate of return and adjust the cash flows for inflation (For example, year 1 cash flow = 1.04 x year 0 cash flow).2) Compute the NPV of the computers using the nominal require rate of return without adjusting the cash flow for inflation.3) Compare your answers in numbers 1 and 2. Which is correct? Would using the incorrect analysis generally lead to overinvestment or underinvestment? Explain.
Angela Moss and Autumn Barber organize a partnership on January 1. Moss's intial net investment is 75,000 consisting of cash 17,500, equipment 82,500 and note payable reflecting a bank loan for a new business 25,000. Barber's initial investment is..
Is is important for a company to follow a strict budget even though they may be experiencing phenomenal profits. Do you think there will a bias towards greed when creating the budget for this company? Explain.
Actual selling price: $7.50, $10.50. Budgeted selling price: $5.50, $10.50. Actual Sales Mix: 69%, 31%. Budgeted Sales Mix: 75%, 25%. What is the total sales-volume variance of revenues?
On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros. On April 1, the spot rate is $1.41 per euro.
Compute the value added, nonvalue added, and the total lead time of the wreath process.
On February 5, 2010, Tropical Connection Company, a garden retailer, purchased $25,000 of seed, terms 2/10, n/30, from Midwest Seed Co. Even though the discount period had expired, Lydia DeLay subtracted the discount of $500 when she processed the..
Expenditures were $3,000,000 in 2006 and $2,015,000 in 2007, including a change order in the amount of $15,000. What amount should be added to net capital assets in the governmental activities accounts in 2007?
what is the maximum amount of foreign tax credit that a company will be allowed to take with respect to the income earned by a foreign operation?
Which of the following is not acceptable in estimating uncollectible accounts receivable under GAAP?
Cost and fair value data for the trading securities of Clifford Company at December 31, 2010, are $100,000 and $74,000, respectively. Which of the following correctly presents the adjusting journal entry to record the securities at fair value?
At December 31, 2008, McGovern Company overstated ending inventory by $50,000. How does this error affect net income for 2009?
Prepare a brief memo (no more than 120 words) giving the arguments for and against offering this preferred stock. In the memo also briefly mention other methods of obtaining the cash.
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