Decrease operating expenses of $90‚000 Incremental net cash flow at t=1: Revenue change: $90‚000 Depreciation: -$266‚640 Net change BT = -$176‚640 Taxes @ 40% = -$70‚656 Net change AT = -$105‚984 Incremental net cash flow (after depreciation) = -$105‚984 + $266‚640= $160‚656. Incremental net cash flow at t=2: Revenue change: $90‚000 Depreciation: -$355‚600 Net change BT = -$265‚600 Taxes @ 40% = -$106‚240 Net change AT = -$159‚360 Incremental net cash flow (after depreciation) = -$159
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of a new one‚ is most profitable. To compare the profitability of these two options we used the difference between the present values of both options and computed only one Net Present Value. Evidently‚ the incremental costs and revenues of the purchase of the new boat minus the incremental costs and revenues of the overhaul of the Cynthia II should be taken into consideration. Assumptions Several aspects of both buying decisions were unclear. Therefore‚ we had to make the following assumptions
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Week 12 Class Exercises Solutions: Exercise 13-29 1. Average investment in productive assets: Balance on 12/31/x1 $12‚600‚000 Balance on 1/1/x1 ($12‚600‚000 1.05) 12‚000‚000 Beginning balance plus ending balance $24‚600‚000 Average balance ($24‚600‚000 2) $12‚300‚000 a. ROI = = = 20% b. Income from operations before income taxes $ 2‚460‚000 Less: imputed interest charge: Average productive assets $12‚300‚000 Imputed interest rate .15 Imputed
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should stay even with the competition So these are the six alternatives relevant decision in Mr.Kacheck’s proposal. 2. For each alternative from question 1‚ list the annual expenses that are incremental to that decision alternative but are not related to the room/days occupied‚ i.e. the incremental fixed costs for each alternative. Option 1: Open in summer without advertisement. Option I Description existing open in summer
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uncollectible are $72‚800‚ which is the annual incremental revenue. In order to get the annual earnings before taxes‚ we must subtract collection costs of 5% ($4‚000) and subtract production and selling costs at 78% ($62‚400) from the annual incremental revenue ($72‚800)‚ which gives us a total of $6‚400 in annual earnings before taxes; subtract taxes at 30% ($1‚920) and this gives us our incremental income after taxes. Now‚ we want to divide the incremental income after taxes into the investment of accounts
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Receivable: b. What would be Collin’s incremental after-tax return on investment? Added Sales $80‚000 Accounts Uncollectible ( 7‚200) * 9% of new sales Annual Incremental Revenue $72‚800 Collection Costs ( 4‚000) * 5% of new sales Production & Selling Costs (62‚400) *78% of new sales Annual Income before taxes $ 6‚400 Taxes (30%) ( 1‚920) Incremental Income after taxes $ 4‚480 Return on Incremental Investments: c. Should Collins
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Terms‚ and Discussions LO1 Explain the role of incremental analysis (analysis of incremental costs and revenues) in management decisions. INCREMENTAL ANALYSIS All decisions involve a choice among alternative courses of action. The solution to all business problems involves incremental analysis—the analysis of the incremental revenue generated and the incremental costs incurred when one decision alternative is chosen over another. Incremental revenue is the additional revenue received as a
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What is incremental analysis? Provide an example of how incremental analysis might be used to make business decisions. Incremental analysis‚ sometimes called marginal or differential analysis‚ is used to analyze the financial information needed for decision-making. It identifies the relevant revenues and/or costs of each alternative and the expected impact of the alternative on future income. A decision-making technique used in business to determine the true cost difference between alternatives
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should Minnie order if she wants to receive the lowest incremental costs between quantities? Quantity Range Quoted Price Quantity Range Incremental Cost 1-999 $4.03 First 999 units $4.03 1000-1999 $4.00 next 999 units $3.97 2000-2999 $3.97 next 999 units $3.91 At least 3000 $3.94 $- Minnie should go with the range of ordering between 2000-2999 in order to achieve the lowest incremental cost. The range of incremental cost is depicted in the table above. 4. Are the optimal
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Multiple choice questions Try the multiple choice questions below to test your knowledge of Chapter 18. Once you have completed the test‚ click on ’Submit Answers for Grading’ to get your results. If your lecturer has requested that you send your results to them‚ please complete the Routing Information found at the bottom of your graded page and click on the ’E-Mail Results’ button. Please do not forward your results unless your lecturer has specifically requested that you do so. This activity
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