Buckeye Healthcare Corp. is proposing to spend $186,725 on an eight-year project that has estimated net cash flows of $35,000 for each of the eight years.

Buckeye Healthcare Corp. is proposing to spend $186,725 on an eight-year project that has estimated net cash flows of $35,000 for each of the eight years.

a. Compute the net present value, using a rate of return of 12%. Use the present value of an annuity of $1 table in the chapter (Exhibit 2).

b. Based on the analysis prepared in part (a), is the rate of return (1) more than 12%, (2) 12%, or (3) less than 12%? Explain.

c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the present value of an annuity of $1 table presented.

Thanks

Daisy’s Creamery Inc. is considering one of two investment options. Option 1 is a $75,000 investment in new blending equipment that is expected to produce equal annual cash flows of

Daisy’s Creamery Inc. is considering one of two investment options. Option 1 is a $75,000 investment in new blending equipment that is expected to produce equal annual cash flows of $19,000 for each of seven years. Option 2 is a $90,000 investment in a new computer system that is expected to produce equal annual cash flows of $27,000 for each of five years. The residual value of the blending equipment at the end of the fifth year is estimated to be $15,000. The computer system has no expected residual value at the end of the fifth year.

Assume there is sufficient capital to fund only one of the projects. Determine which project should be selected, comparing the (a) net present values and (b) present value indices of the two projects. Assume a minimum rate of return of 10%. Round the present value index to two decimal places.

Thanks

The Drogon Co. just issued a dividend of $3.30 per share on its common stock. The company is expected to maintain a constant 6.8 percent growth rate in its dividends indefinitely. If the stock sells for $66 a share, what is the company’s cost of equity?

The Drogon Co. just issued a dividend of $3.30 per share on its common stock. The company is expected to maintain a constant 6.8 percent growth rate in its dividends indefinitely.

If the stock sells for $66 a share, what is the company’s cost of equity?

Chocolaterie de Geneve, SA, is located in a French-speaking canton in Switzerland. The company makes chocolate truffles that are sold in popular embossed tins. The company has two processing departments—Cooking and Molding. In the Cooking Department, the raw ingredients for the truffles are mixed and then cooked in special candy-making vats. In the Molding Department, the melted chocolate and other ingredients from the Cooking Department are carefully poured into molds and decorative flourishes are applied by hand. After cooling, the truffles are packed for sale. The company uses a process costing system. The T-accounts below show the flow of costs through the two departments in April:

Work in Process—Cooking
Balance 4/1	8,000	Transferred out	160,000
Direct materials	42,000
Direct labor	50,000
Overhead	75,000

Work in Process—Molding
Balance 4/1	4,000	Transferred out	240,000
Transferred in	160,000
Direct labor	36,000
Overhead	45,000

Required:

Prepare journal entries showing the flow of costs through the two processing departments during April.

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting direct labor	$	6	per direct labor-hour
Machine processing	$	4	per machine-hour
Machine setups	$	50	per setup
Production orders	$	90	per order
Shipments	$	14	per shipment
Product sustaining	$	840	per product

Activity data have been supplied for the following two products:

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	80	500
Machine-hours	100	1,500
Machine setups	1	4
Production orders	1	4
Shipments	1	10
Product sustaining	1	1

Required:

How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?

Explanation

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:

Vulcan Flyovers
Operating Data
For the Month Ended July 31
	Actual Results		Flexible Budget		Planning Budget
Flights (q)		48		48		50
Revenue ($320.00q)	$	13,650	$	15,360	$	16,000
Expenses:
Wages and salaries ($4,000 + $82.00q)		8,430		7,936		8,100
Fuel ($23.00q)		1,260		1,104		1,150
Airport fees ($650 + $38.00q)		2,350		2,474		2,550
Aircraft depreciation ($7.00q)		336		336		350
Office expenses ($190 + $2.00q)		460		286		290
Total expense		12,836		12,136		12,440
Net operating income	$	814	$	3,224	$	3,560

The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.

Required:

1. Prepare a flexible budget performance report for July that includes revenue and spending variances and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Explanation

1.

Vulcan Flyovers
Flexible Budget Performance Report
For the Month Ended July 31
	Actual Results		Revenue and Spending Variances			Flexible Budget		Activity Variances			Planning Budget
Flights (q)		48					48					50
Revenue ($320.00q)	$	13,650	$	1,710	U	$	15,360	$	640	U	$	16,000
Expenses:
Wages and salaries ($4,000 + $82.00q)		8,430		494	U		7,936		164	F		8,100
Fuel ($23.00q)		1,260		156	U		1,104		46	F		1,150
Airport fees ($650 + $38.00q)		2,350		124	F		2,474		76	F		2,550
Aircraft depreciation ($7.00q)		336		0	None		336		14	F		350
Office expenses ($190 + $2.00q)		460		174	U		286		4	F		290
Total expense		12,836		700	U		12,136		304	F		12,440
Net operating income	$	814	$	2,410	U	$	3,224	$	336	U	$	3,560

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Activity Cost Pool	Activity Rate
Supporting direct labor	$	26	per direct labor-hour
Order processing	$	284	per order
Custom design processing	$	186	per custom design
Customer service	$	379	per customer

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months:

	Standard Model		Custom Design
Number of gliders		20		3
Number of orders		1		3
Number of custom designs		0		3
Direct labor-hours per glider		26.35		28.00
Selling price per glider	$	1,850	$	2,400
Direct materials cost per glider	$	564	$	634

The company’s direct labor rate is $19.50 per hour.

Required:

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters.

Big Sky Outfitters Customer Margin—Activity-Based Costing
Sales ($1,850 per standard model glider × 20 standard model gliders + $2,400 per custom designed glider × 3 custom designed gliders)			$	44,200
Costs:
Direct materials ($564 per standard model glider × 20 standard model gliders + $634 per custom designed glider × 3 custom designed gliders)	$	13,182
Direct labor ($19.50 per direct labor-hour × 26.35 direct labor-hours per standard model glider × 20 standard model gliders + $19.50 per direct labor-hour × 28 direct labor-hours per custom designed glider × 3 custom designed gliders)		11,915
Supporting direct labor ($26 per direct labor-hour × 26.35 direct labor-hours per standard model glider × 20 standard model gliders + $26 per direct labor-hour × 28 direct labor-hours per custom designed glider × 3 custom designed gliders)		15,886
Order processing ($284 per order × 4 orders)		1,136
Custom design processing ($186 per custom design × 3 custom designs)		558
Customer service ($379 per customer × 1 customer)		379		43,056
Customer margin			$	1,144