Required: Determine the cost of the development project that should be capitalized.
Q: Describe a process that firms often use to determine a project’srisk-adjusted costs of capital.
A: Risk-Adjusted cost of capital: It carried out to find the Net present value of a project if the…
Q: How can we determine the period necessary to recover both the capitalinvestment and the cost of…
A: The Payback period (PBP) determines how long it would take a company to recover the investment. PBP…
Q: calculate the capitalized value
A: Capitalized Value is the actual amount of an asset. It is considered when there is ownership of an…
Q: Calculate the viability of the project based on Net Present Value & mention any concerns
A: Net present value is defined as the summation of the present value of cash inflows in each period…
Q: If you were to choose a method or combination of methods to assess the viability of a capital…
A: There are several methods listed to assess the viability of capital projects and explained below:…
Q: Explain the Calculation of Net Income Attributable to New Project?
A: Answer: Companies regularly estimate the income after meeting all the expenses due to the new…
Q: Required Determine the capitalized cost of the asset.
A: Step 1 Hello. Since your question has multiple parts, we will solve first question for you. If you…
Q: Which of the following is not a condition that must be satisfied before interest capitalization can…
A: Capitalized Interest: Interest is usually paid on the amount borrowed and it is shown as an expense…
Q: Which of the following is a criterion for a capital expenditure? a.It should increase the…
A: Capital Expenditure: It is the amount that a company spends on the development of machinery,…
Q: Which of the following items is irrelevant in determining the relevant cost of acquisition in…
A: Capital budgeting: capital budgeting is a decision making method done by management accountants in…
Q: How can we determine after-tax cash flows for an investmenta project with only operating and…
A: Discount rate is the weighted average cost of capital (WACC) which is used in the project. WACC is…
Q: Which of the following is NOTa relevant cash flow and thus should not be reflected in the analysis…
A: Sunk cost is the cost that has been incurred and it would not be recovered in future. It depends on…
Q: Which of the following methods of capital budgeting indicates the time period required to recover…
A: Capital budgeting is a process of identifying high return project or projects which will increase…
Q: how would a private company determine the MARR to be used in evaluating to a project?
A: A company that does not issue its securities to the general public refers to a private company; the…
Q: How can a developer create value over and above their project cost when attempting to obtain…
A: Financing refers to a process of raising funds for business activities, and making purchases or…
Q: The available capital funds are to be carefully allocated among competing projects by careful…
A: The company should invest the capital funds in such a manner that provides the maximum profit to the…
Q: Which of the following is NOT relevant to the evaluation of a proposed project? Incremental cash…
A: While eveluating a project all the initial cash flows and subsequent cash flows are considered. All…
Q: Describe the process of using the Income-Tax Rate in Project Evaluation?
A: The income tax rate is used to determine the cash flow after tax. As cash flow after tax helps in…
Q: Please state all criteria that can be used in the economic evaluation of projects. Explain the…
A: Criteria of evaluation of projects: 1 Analysis of cost required for projects. 2 Analysis of benefit…
Q: Relate the idea of cost of capital to the opportunity cost concept. Is the cost of capital the…
A: The total cost of financing current projects (or projects under consideration) will be the financial…
Q: Explain project cost of capital, r
A: In order to achieve the capital expenditure venture, such as the construction of a new plant, the…
Q: This refers to the funds which are necessary to make the project a going concern. a. Development…
A: Going concern is an accounting concept that states that a business will continue to operate…
Q: Determine the period necessary to recover both the capital investment and the cost of funds required…
A: The payback period alludes to what extent it takes for a speculator to hit breakeven to recoup the…
Q: A choice of different measurement models can be applied to investment property, namely: the fair…
A: Investment property is the property which is held by the company or by any business which has been…
Q: The capital budgeting decision depends in part on the A. availability of funds. B.…
A:
Q: capital projects
A: Option A is wrong because the establishment of a ranking procedure based on quantitative criteria…
Q: When and under what conditions the cross over rate will be used will be an essential consideration…
A: Introduction: The process through which the corporation decides on the project investments that will…
Q: Discuss the factors that must be considered in choosing the means of financing a project
A: Project financing is a means of obtaining funds for industrial projects, long-term infrastructure,…
Q: Explain Capital Budgeting? Mention the decision-making process of all capital budgeting techniques.
A: Capital budgeting refers to the process of making investment decisions in capital expenditure.…
Q: acquiring capital assets for future use is one type of capital expenditure proposal. true or false
A: Capital expenditure (or capex) refers to those expenditures that are incurred by a company for…
Q: How do we develop the project cash flows, after taxes, over the life of the project?
A: Cash flows of the project include both cash inflows and cash outflows. To develop cash flows…
Q: Discuss the value and limitations of WACC as a discount rate for use in the appraisal of capital…
A: WACC refers to weighted average cost of capital. This is the average cost of capital for a firm and…
Q: Should capital budgeting decisions be made solely on the basis of a project’s NPV?Explain.
A: Capital budgeting decisions are based on various factors in which NPV is one of the factors which…
Q: In the initial investment of a project you must include the working capital.
A: Working capital is an amount which firms require to operate day to day business activities or…
Q: Which of the following step is followed immediately after evaluating the proposals under capital…
A: The following step that is followed immediately after evaluating the proposals under capital…
Q: Distinguish between the “cost model” and “fair value” model of accounting for investment property.
A: Investment property is land or a building (including a part of a building) or both that is: →held to…
Q: How capital expenditure(investment) analysis helps in focusing particular projects and program ?
A: Expenditure in the company can be divided into two parts. Revenue expenditures:- expenditure…
Q: What are some risk factors when making decisions regarding capital projects? Provide details.
A: Capital projects or Capital budgeting is the planning process used to determine whether an…
Q: How to fund the expansion?
A: Funding needed by company when company wanted to go for expansion of product and growth.There are…
Q: Describe the procedure to consider the time value of money that is, the cost of funds used to…
A: Time value of money states that value of certain amount of money in present times is higher as…
Q: Which of the following step is followed before evaluation of proposals under capital budgeting…
A: Step 1: Investment proposals. Step 2: Screening of available proposals. Step 3: Evaluate various…
Step by step
Solved in 2 steps
- An automobile spare part manufacturer has set up a project for developing a new machine for one of its production lines. The engineering department has provided a project proposal that estimates the following investment requirements: ) An initial investment of RM 300,000 to be paid for purchasing the new machine. i) An additional cost is needed to install the machines and integrate it into the overall production system and it is estimated to take one (1) year for completion. There are three cost categories involved: • Engineering labor cost, estimated to be 1200 hours at a cost of RM 100/hour. • None-engineering labor cost, estimated to be 3000 hours at a cost of RM 50/hour. Assorted material cost, estimated to be RM 100,000. iv) The machine has to be overhauled every 2 year, and it costs RM 20.000 beginning the third year of the project. They will not overhaul the machine in the last year of its life. v) The production will be started in the second year, and it will be up-to-speed by…The following costs are incurred during the research and development phases of a laser bone scanner Laboratory research aimed at discovery of new knowledge $800,000Search for application of new research findings 400,000Salaries of research staff designing new laser bone scanner 1,200,000Material, labor and overhead costs of prototype laser scanner 850,000Costs of testing prototype and design modifications 450,000Engineering costs incurred to advance the laser scanner to full production stage (technological feasibility reached) 700,000 Identify which of these are development phase items and will be immediately expensed under GAAP and IFRS. GAAP IFRS $1,200,000 $1,200,000 $2,400,000 $1,400,000 $2,400,000 $2,500,000 $3,200,000 $2,500,000A manufacturer incurs the following costs: $38,000 developing new techniques that will be put in place shortly to cut production costs; $27,000 researching a new process to improve the quality of the standard product and $8,000 on market research into the commercial viability of a new type of product. It is company policy to capitalise costs whenever permitted by IAS 38 Intangible Assets. 9.7 How much should be charged as research and development expenditure in profit or loss? (ignore amortisation) $73,000 $35,000 $27,000 $38,000 A 229ni2ud a yde C BPP EARNING MEDIA
- Immortality Co. made the following expenditures relating to a newly invented product Legal and registration costs related to a patent on the product 120,000Special equipment used solely on R&D activities for the newly invented product 720,000Depreciation on the special equipment above 180,000Labor and material costs incurred in producing a prototype model 2,400,000Cost of testing the prototype 960,000 Required:What is the total amount of costs that will be expensed when incurred?ABC Co. made expenditures for the following: Cost in activities aimed at obtaining new knowledge ₱10,000 Marketing research to study consumer tastes 5,000 Cost of developing and producing a prototype model 3,000 Cost of testing the prototype model for safety and environmental friendliness 40,000 Cost revising designs for flaws in the prototype model 15,000 Salaries of employees, consultants, and technicians involved in R&D 20,000 Cost of conference for the introduction of the newly developed product including fee of amodel hired as endorser 100,000 Advertising to establish recognition of the newly developed product 30,000. How much is recognized as research and development expense? a. 68,000 b. 72,000 c. 88,000 d. 94,000A company is going to buy a new equipment for manufacturing itsproduct. Four different equipment’s are available; costs, operating and otherexpenses are as follows:Equipment A B C DFirst Cost Php 24,000 Php 30,000 Php 49,600 Php 52,000Power per year Php 1300 Php 1360 Php 2400 Php 2520Labor per year Php 10,600 Php 9320 Php 4200 Php 2700Maintenance/year Php 2800 Php 1900 Php1300 Php 700Taxes & Insurance 2% 2% 2% 2%Life; years 5 5 5 5 Money is worth 10% before taxes to the company. Which equipment shouldbe purchased ? Choose which method is applicable.
- Sandhill Communications contracted to set up a call center for the City of Phoenix. Under the terms of the contract, Sandhill Communications will design and set-up a call center with the following costs: Design of call center $18000 Computers, servers, telephone equipment $510000 Software $150000 Installation and testing of equipment $26000 Selling commission $46000 Annual service contract $80000 In addition, Sandhill Communications will maintain and service the equipment and software to ensure smooth operations of the call center for an annual fee of $160000. Ownership of equipment installed remains with the City of Phoenix. The contract costs that should be capitalized is $678000. $830000. $660000. $750000.NhyiraCapital Limited began research into the software it has used over a period. The software has been operational for the generation of economic benefits over the years. The company decided to research the development of the software. The company assigned four researchers who were paid R10,000 in total for the period of the research. Transportation and feeding costs incurred in carrying out the research amounted to R4,000. The company further acquired four tablets with research software for R25,000 each to enable them to ascertain accurate findings.The company’s software is separately identified and has a commercial value. The research was completed and there is a need for developing the company’s software. A development cost of R125,000 was reliably measured and incurred. The economic useful life of the software was estimated to be 10 years from the date of completing its development. Show how the software and its related expenses are to be capitalized in the financial statements…Satellite Systems modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:Basic research to develop the technology $ 3,900,000Engineering design work 1,180,000Development of a prototype device 590,000Testing and modification of the prototype 390,000Legal fees for patent application 79,000Legal fees for successful defense of the new patent 39,000Total $ 6,178,000During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all the above as costs of the patent. Management contends that the device represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized.Required:1. Which of the above costs should Satellite Systems capitalize to the Patent account in the balance sheet?2. Which of the above costs should Satellite Systems report as research and development expense in the income statement?3. What are the basic criteria…
- Wolfe Assembly Masters developed a new cost- and time-efficient assembly process that would be advantageous to many manufacturing companies. To protect their process, they applied for and obtained a patent. Which of the following costs associated with the assembly process should Wolfe amortize as an intangible asset? $12,000 in disposal fees to remove hazardous waste collected during research and development $1.56 million in development costs to develop the process $37,000 to apply for a patent for the process $914,000 in research costs to learn about the processTwo lathes are being considered in the manufacture of certain machine parts. Data is given below, all cost in peso: LATHE A LATHE B First Cost 40,000 56,000 Salvage Value 5,000 7,000 Annual Maintenance 2,000 2,800 Operation, Cost/hour 4 3.5 Life, in years 10 12 Time per part (hours) 0.40 0.25 REQUIRED: If the number of parts is 10,000 units, which lathe will you recommend? Use ROR If the number of parts is 10,000 units, which lathe will you recommend? Use EUACSmithy Ltd wants to invest in a new machine cooling system. There are three different systems currently in the market: Water-cooled Refrigerant Air-cooled Initial investment 488,000 990,000 1,020,000 Regular maintenance costs per annum 86,000 27,000 80,000 Scheduled major maintenance costs 46,000 72,000 44,000 Energy cost per annum 90,000 60,000 75,000 Other operating cost per annum 107,000 45,000 - Waste per annum 230,000 kilolitres of water* 50 litres of NH3** - Sound tiers (decibels)*** 95 55 85 The water-cooled system and refrigerant system requires a major maintenance at the end of every five years, while the air-cooled system requires a major maintenance at the end of every 10 years. The required rate of return is 10% for all capital investments. Assume a time horizon of 12 years. Ignore tax effects. Required: Calculate the net present value of the three systems. Which option is superior on…