## Friday, 13 February 2015

### Xcite Equipment Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a \$330 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be \$211,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are \$264 per 100 yards of XT rope.

Xcite Equipment Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a \$330 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be \$211,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are \$264 per 100 yards of XT rope.

### On January 1, 2013, a company agrees to pay \$22,000 in nine years. If the annual interest rate is 8%, determine how much cash the company can borrow with this agreement.

On January 1, 2013, a company agrees to pay \$22,000 in nine years. If the annual interest rate is 8%, determine how much cash the company can borrow with this agreement.

### McAdams Company expects to earn 6% per year on an investment that will pay \$601,773 ten years from now. (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) Compute the present value of this investment.

 McAdams Company expects to earn 6% per year on an investment that will pay \$601,773 ten years from now. (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) Compute the present value of this investment.

### Spiller Corp. plans to issue 10%, 6-year, \$570,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2013, and are issued on that date. (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) If the market rate of interest for the bonds is 8% on the date of issue, what will be the total cash proceeds from the bond issue?

Spiller Corp. plans to issue 10%, 6-year, \$570,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2013, and are issued on that date. (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.)

If the market rate of interest for the bonds is 8% on the date of issue, what will be the total cash proceeds from the bond issue?

### Sam Weber finances a new automobile by paying \$6,700 cash and agreeing to make 40 monthly payments of \$480 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile?

Sam Weber finances a new automobile by paying \$6,700 cash and agreeing to make 40 monthly payments of \$480 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile?

### Ed Summers expects to invest \$25,000 for 10 years, after which he wants to receive \$49,180.00. What rate of interest must Summers earn? (Use table B.2.) (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided.)

Ed Summers expects to invest \$25,000 for 10 years, after which he wants to receive \$49,180.00. What rate of interest must Summers earn? (Use table B.2.) (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided.)

### Bill Thompson expects to invest \$8,000 at 15% and, at the end of a certain period, receive \$74,861. How many years will it be before Thompson receives the payment? (Use table B.2.) (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided.)

Bill Thompson expects to invest \$8,000 at 15% and, at the end of a certain period, receive \$74,861. How many years will it be before Thompson receives the payment? (Use table B.2.) (PV of \$1, FV of \$1, PVA of \$1, and FVA of \$1) (Use appropriate factor(s) from the tables provided.)

### Blanchard Company manufactures a single product that sells for \$184 per unit and whose total variable costs are \$138 per unit. The company’s annual fixed costs are \$632,000. The sales manager predicts that annual sales of the company’s product will soon reach 40,200 units and its price will increase to \$202 per unit. According to the production manager, the variable costs are expected to increase to \$142 per unit but fixed costs will remain \$632,000. The income tax rate is 30%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

Blanchard Company manufactures a single product that sells for \$184 per unit and whose total variable costs are \$138 per unit. The company’s annual fixed costs are \$632,000. The sales manager predicts that annual sales of the company’s product will soon reach 40,200 units and its price will increase to \$202 per unit. According to the production manager, the variable costs are expected to increase to \$142 per unit but fixed costs will remain \$632,000. The income tax rate is 30%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

### Blanchard Company manufactures a single product that sells for \$240 per unit and whose total variable costs are \$180 per unit. The company targets an annual after-tax income of \$900,000. The company is subject to a 40% income tax rate. Assume that fixed costs remain at \$954,000.

Blanchard Company manufactures a single product that sells for \$240 per unit and whose total variable costs are \$180 per unit. The company targets an annual after-tax income of \$900,000. The company is subject to a 40% income tax rate. Assume that fixed costs remain at \$954,000.
(1) Compute the unit sales to earn the target after-tax net income.

Explanation:
 Preliminary computations

 Pretax income = After-tax income / (1 – Tax rate) = \$900,000 / (1 – 0.40) = \$900,000 / 0.60 = \$1,500,000

 Income taxes = Pretax income × Tax rate = \$1,500,000 × 0.40 = \$600,000