Managerial Accounting 1B
Financial and Managerial Accounting
Chapter 24
1.Exercise 241 Payback period computation; even cash flows L.O. P1
Compute the payback period for each of these two separate investments: 
a. 
A new operating system for an existing machine is expected to cost $2 60,000 and have a useful life of five years. The system yields an incremental aftertax income of $ 75,000 each year after deducting its straightline depreciation. The predicted salvage value of the system is $10,000. (Round your answer to 2 decimal places.) 
Payback period 
b. 
A machine costs $190,000, has a $10,000 salvage value, is expected to last nine years, and will generate an aftertax income of $ 30,000 per year after straightline depreciation. (Round your answer to 1 decimal place.) 
Payback period
2.
Exercise 242 Payback period computation; uneven cash flows L.O. P1
Wenro Company is considering the purchase of an asset for $90,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. 
$
$ 30,000 $
$
$
Year 1 
Year 2 
Year 3 
Year 4 
Year 5 
Total 

Net cash flows 
$  30,000 
20,000 
60,000 
19,000 
159,000 

Compute the payback period for this investment. (Round your intermediate calculations to 3 decimal places and final answer to 1 decimal place.) 
Payback period 3.
Exercise 243 Payback period computation; decliningbalance depreciation L.O. P1
A machine can be purchased for $300,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, doubledeclining balance depreciation is applied, using a 5year life and a $ 50,000 salvage value. 
Year 1 Year 2 Year 3 Year 4 Year 5
$ 20,000 $
$
$
$
Net income s 
50,000 
100,000 
75,000 
200,000 
Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and final answer to 2 decimal places.) 
Payback period 4.
Exercise 244 Accounting rate of return L.O. P2
A machine costs $500,000 and is expected to yield an aftertax net income of $ 15,000 each year. Management predicts this machine has a 10year service life and a $100,000 salvage value, and it uses straightline depreciation. Compute this machine’s accounting rate of return. (Omit the “%” sign in your response.) 
Accounting rate of return 
5.
Exercise 246 Computing net present value L.O. P3
K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $240,000 with a 12year life and no salvage value. It will be depreciated on a straightline basis. K2B Co. concludes that it must earn at least a 8% return on this investment. The company expects to sell 96,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. (Use Table B.3) 
$
20,000
$
Sales 
150,000 
Costs 

Materials, labor, and overhead (except depreciation) 
80,000 
Depreciation on new equipment 

Selling and administrative expenses 
15,000 
Total costs and expenses 
115,000 
Pretax income 
35,000 
Income taxes (30%) 
10,500 
Net income 
24,500 
Compute the net present value of this investment. (Round “PV Factor” to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the “$” sign in your response.) 