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    Acctg 16B Assgn 2

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    Bryan Lluisma
    The document discusses two exercises: 1) The first exercise calculates the simple rate of return of purchasing a new automated bottling machine for $80,000 that would save $23,000 per year in operating costs compared to their current machine. The simple rate of return is calculated to be 20%. 2) The second exercise calculates the present value of investing a lump sum now to have $400,000 available in 3 years for a new garage. At an 8% interest rate, the present value is $317,600, and at a 12% interest rate, the present value is $284,800.

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    Acctg 16B Assgn 2

    Uploaded by

    Bryan Lluisma
    1K views2 pages
    The document discusses two exercises: 1) The first exercise calculates the simple rate of return of purchasing a new automated bottling machine for $80,000 that would save $23,000 per year in operating costs compared to their current machine. The simple rate of return is calculated to be 20%. 2) The second exercise calculates the present value of investing a lump sum now to have $400,000 available in 3 years for a new garage. At an 8% interest rate, the present value is $317,600, and at a 12% interest rate, the present value is $284,800.

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    ACCTG 16B ASSGN 2

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    The document discusses two exercises: 1) The first exercise calculates the simple rate of return of purchasing a new automated bottling machine for $80,000 that would save $23,000 per year in operating costs compared to their current machine. The simple rate of return is calculated to be 20%. 2) The second exercise calculates the present value of investing a lump sum now to have $400,000 available in 3 years for a new garage. At an 8% interest rate, the present value is $317,600, and at a 12% interest rate, the present value is $284,800.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views2 pages

    Acctg 16B Assgn 2

    Uploaded by

    Bryan Lluisma
    The document discusses two exercises: 1) The first exercise calculates the simple rate of return of purchasing a new automated bottling machine for $80,000 that would save $23,000 per year in operating costs compared to their current machine. The simple rate of return is calculated to be 20%. 2) The second exercise calculates the present value of investing a lump sum now to have $400,000 available in 3 years for a new garage. At an 8% interest rate, the present value is $317,600, and at a 12% interest rate, the present value is $284,800.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    BRYAN T.

    LLUISMA ACCTG 16B


    BSA-4 SAT 6-9PM

    Exercise 1 (Simple Rate of Return Method)


    The management of Wallingford MicroBrew is considering the purchase of an
    automated bottling machine for $80,000. The machine would replace an old piece
    of equipment that costs $33,000 per year to operate. The new machine would cost
    $10,000 per year to operate. The old machine currently in use could be sold now
    for a scrap value of $5,000. The new machine would have a useful life of 10 years
    with no salvage value.
    Required:
    Compute the simple rate of return on the new automated bottling machine.

    Operating cost of old machine..................................................... P33,000


    Less operating cost of new machine............................................ 10,000
    Less annual depreciation on the new machine (P80,000
    ÷ 10 years) ............................................................................... 8,000
    Annual incremental net operating income................................... P15,000
    Cost of the new machine ............................................................. P80,000
    Less scrap value of old machine.................................................. 5,000
    Initial investment......................................................................... P75,000

    Simple rate of return = Annual incremental net operating income


    Initial Investment

    = P15, 000 = 20%


    P 75, 000
    Exercise 2 (Basic Present Value Concepts)

    Amano Freightlines plans to build a new garage in three years to have more
    space for repairing its trucks. The garage will cost $400,000. What lump-sum
    amount should the company invest now to have the $400,000 available at the end
    of the three-year period? Assume that the company can invest money at:
    a. Eight percent
    b. Twelve percent

    1.
    a) The present value factor of 8% for three periods is 0.794

    a. P400,000 × 0.794 = P317,600

    b) The present value factor of 12% for three periods is 0.712

    b. P400,000 × 0.712 = P284,800.

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