Raycroft operates a nuclear power station. The power station is due to be decommissioned on 31 December 20X8 but will be fully operational up to that date. It has been estimated that the cost of decommissioning the power station and cleaning up any environmental damage, as required by legislation, will be $60 million. Raycroft recognised a provision for the present value of this expenditure at 31 December 20X0. A suitable discount rate for evaluating costs of this nature is 12%, equivalent to a present value factor after eight years of 0.404. The decommissioning cost will be depreciated over eight years. What is the total charge to profit or loss in respect of this provision for the year ended 31 December 20X1 and 20X2?

Raycroft operates a nuclear power station. The power station is due to be decommissioned on 31 December 20X8 but will be fully operational up to that date. It has been estimated that the cost of decommissioning the power station and cleaning up any environmental damage, as required by legislation, will be $60 million. Raycroft recognised a provision for the present value of this expenditure at 31 December 20X0. A suitable discount rate for evaluating costs of this nature is 12%, equivalent to a present value factor after eight years of 0.404. The decommissioning cost will be depreciated over eight years. What is the total charge to profit or loss in respect of this provision for the year ended 31 December 20X1 and 20X2?

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 5MAD: Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to...

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Raycroft operates a nuclear power station. The power station is due to be decommissioned on 31 December 20X8 but will be fully operational up to that date. It has been estimated that the cost of decommissioning the power station and cleaning up any environmental damage, as required by legislation, will be $60 million. Raycroft recognised a provision for the present value of this expenditure at 31 December 20X0. A suitable discount rate for evaluating costs of this nature is 12%, equivalent to a present value factor after eight years of 0.404. The decommissioning cost will be depreciated over eight years. What is the total charge to profit or loss in respect of this provision for the year ended 31 December 20X1? $2,880,800 $3,030,000 $5,938,800 $7,500,000
Liv Enterprise is considering a national launch of 2 corn chip products under project A and B. The National launch will require the following:Additional manufacturing equipment; Project A: K900, 000.00 and Project B: K1, 000,000.00 Upgrading Existing Facilities; Project A: K100, 000.00 and Project B: K400,000.00 Both of the above would be paid for at the outset and would be depreciated in the accounts over a five year period using straight line with a residual value of for both for Project A and B of zero.Projected revenues and costs over a period of five years are given in table below:Project AYear Revenue Costs1 K1,200,000.00 K1,340,000.002 K2,000,000.00 K1,670,000.003 K2,000,000.00 K1,520,000.004 K2,250,000.00 K1,685,000.005 K2,250,000.00 K1,685,000.00 Project B Year Revenue Costs1 K1,300,000.00 K1,460,000.002 K2,100,000.00 K1,520,000.003 K2,200,000.00 K1,400,000.004…
A project study for the construction of an engineering building are under consideration. Based on the study the cost of the building is P6,500,000 with a life of 30 years and a salvage value of P400,000. Yearly maintenance and repair is P18,000. If the yield of the investment is 6%, determine the equivalent uniform annual cost. Select the correct response: 485,581.36 O 458,581.36 485,158.36 458,158.36
Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to service its east coast stores based on the following estimates: a. Determine the net present value of building the warehouse, assuming a construction cost of 20,000,000, an annual net cost savings of 4,000,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. b. Determine the net present value of building the warehouse, assuming a construction cost of 25,000,000, an annual net cost savings of 2,500,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. c. Interpret the results of parts (a) and (b).
A proposed cost-saving device has an installed cost of $795,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $79,000, the tax rate is 22 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $121,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. Pretax cost savings $ 194.191.50 X
A proposed cost-saving device has an installed cost of $785,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $75,000, the tax rate is 25 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $115,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
The Cebu City plans to increase the capacity of her existing water transmission lines. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P197,342,811 and the life is 40 years, with an annual operating cost of P8,450,154 for the 1st 20 years and P13,297,046 for the next 20 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 40 years. The pumping equipment cost an additional amount of P25M, it has a life of 20 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 21% cpd. annually, what is the PV of Plan A?
The government plans to increase the capacity of her existing water transmission lines in Cebu City. Two plans are under consideration. Plan A requires the construction of a parallel pipeline, the flow being maintained by gravity. The initial cost is P182,947,337 and the life is 50 years, with an annual operating cost of P5,725,635 for the 1st 25 years and P11,441,794 for the next 25 years. Plan B requires the construction of a booster pumping station costing P100M with the life of 50 years. The pumping equipment cost an additional amount of P25M, it has a life of 25 years and a salvage value of P2M. The annual operating cost is P5M. Using the Present Value (PV) Method and an interest of 23% cpd. annually, what is the PV of Plan A?
Tuas Limited (“Tuas”) is considering to replace its existing air-conditioning system with an energy efficient centralised cooling system that is compliant with BCA Green Mark 2021 (“new cooling system”).Civil engineering costs to assess the feasibility of the new cooling system of $50,000 was incurred last month. Installing the new cooling system will cost $320,000, and maintenance expense of $25,000 per year is required. An initial investment in spare parts inventory of $12,000 is needed, which will be fully recovered at the end of its useful life of five years.Savings in utilities is estimated to be $150,000 per year for the next five years. Tuas adopts a policy of depreciating such equipment to zero net book value equally over five years. A salvage value of $20,000 is anticipated. Corporate tax rate is 17% and the discount rate is 10%. Tuas is also considering the following five projects, and has $8M available to invest: see image Examine which projects Tuas should invest in and…
Tuas Limited (“Tuas”) is considering to replace its existing air-conditioning system with an energy efficient centralised cooling system that is compliant with BCA Green Mark 2021 (“new cooling system”).Civil engineering costs to assess the feasibility of the new cooling system of $50,000 was incurred last month. Installing the new cooling system will cost $320,000, and maintenance expense of $25,000 per year is required. An initial investment in spare parts inventory of $12,000 is needed, which will be fully recovered at the end of its useful life of five years.Savings in utilities is estimated to be $150,000 per year for the next five years. Tuas adopts a policy of depreciating such equipment to zero net book value equally over five years. A salvage value of $20,000 is anticipated. Corporate tax rate is 17% and the discount rate is 10%. Solve the cash flow from assets for Years 0 to 5 (inclusive) relating to the new cooling system, and appraise whether Tuas should proceed with it.…
At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line basis over a period of six years (years 1–6). • The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. • Replacing the old machine will require an investment in net operating working capital (NOWC) of $50,000 that will be recovered at the end…
A proposed cost-saving device has an installed cost of $905,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $65,000, the tax rate is 22 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $125,000. What level of pretax cost savings do we require for this project to be profitable? (MACRS schedule) Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Required cost savings