The anchoring tendency relates to:
A. Starting from an initial numerical value and then adjusting insufficiently away from it in forming a final judgment
B. Developing a system to give voice to one's values
C. Developing a decision making framework
D. Starting from management's estimate and then adjusting sufficiently away from it in forming a final judgment
Answer: A
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Ferrous Supplies, Inc., a manufacturer of finished steel products from recycled metals and recycled ferrous and non-ferrous metal and auto parts, is evaluating two mutually exclusive investment projects. In the first project, the firm will supply 8,000 wheels annually to Ford Motor Company at an average price of $750 per wheel over a period of 5 years. The second project involves the supply of 12,000 auto exhaust systems annually to General Motors Company at an average price of $300 per unit over a period of seven years. The equipment required to produce the wheels will cost $2,400,000 plus $100,000 in shipping and installation costs. This equipment has an expected life of 10 years and will be depreciated using the MACRS 7-year class life. After the 5-year contract with Ford Motor
Company, this equipment can be sold for 700,000, but the firm will need to pay $30,000 in removal expenses. The production of the wheels will require an additional investment of $500,000 in raw materials and the variable costs per wheel are estimated to be 70% of the selling price. The forecasted fixed costs associated with the wheels include 12 workers to operate the equipment earning an average of $40,000 each per year in salaries and benefits, $50,000 annually in maintenance costs, and $20,000 in miscellaneous fixed expenses. 1. The equipment required to produce auto exhaust systems will cost $1,500,000 plus $150,000 of shipping and installation expenses. The expected life of this equipment is 10 years and will be depreciated using the MACRS 5-year class life. The equipment has an estimated salvage value of $150,000 after the 7-year contract with General Motors Company, but the firm will need to pay $50,000 in removal expenses. The production of the auto exhaust systems will require an additional investment of $200,000 in raw materials and the variable costs per unit are estimated to be 60% of the selling price. The forecasted fixed costs associated with the systems include 15 workers to operate the equipment earning an average of $38,000 each per year in salaries and benefits, $30,000 annually in maintenance expenses, and $10,000 in miscellaneous fixed expenses. The firm plans to finance the selected investment project with a bank loan at a fixed rate of 7% for 5 or 7 years depending upon the selected project’s life. The workers’ salaries and benefits, and maintenance expenses are expected to grow at an average rate of inflation of 3%. The firm’s WACC is 15%, its reinvestment rate is 10%, and its marginal tax rate is 40%.
a) Calculate the initial investment, annual after-tax cash flows, and the terminal cash flow of each investment project.
b) Calculate the payback period, discounted payback period, NPV, PI, IRR, and MIRR of each investment project. Should the firm accept or reject one or both projects?
c) The firm’s management has decided to reconsider some estimated variables and has determined the following three possible scenarios:
Create a scenario analysis showing the NPV of each project using the information in the table above. Which project should be selected under which scenario?
Based on the unadjusted trial balance for Glow Styling and the adjusting information given below, prepare the adjusting journal entries for Glow Styling. After completing the adjusting entries, prepare the trial balance for Glow Styling.Glow Styling unadjusted trial balance for the current year follows:Glow StylingTrial BalanceDecember 31Cash………………………………………………….$ 4,200?Prepaid insurance …………………………………...1,480?Shop supplies .............................................................990?Shop equipment …………………………………….3,860?Accumulated depreciation-shop equipment ……….. ?$ 770Building……………………………………………...57,500?Accumulated
depreciation-building………………..?3,840Land ………………….55,000?Unearned rent………………………………………..?1,600Long-term notes payable…………………………….?50,000Common stock ……………………………….?40,000Retained earnings ……………………………….?9,860Rent earned ………………………………………….?2,400Fees earned ………………………………………….?23,400Wages expense ……………………………………...3,200?Utilities expense ……………………………………690?Property taxes expense …………………………….600?Interest expense ……………………………………4,350________Totals ……………………………………………….. $131,870 ? $131,870Additional information:a. An insurance policy examination showed $1,240 of expired insurance.b. An inventory count showed $210 of unused shop supplies still available.c. Depreciation expense on shop equipment, $350.d. Depreciation expense on the building, $2,220.e. A beautician is behind on space rental payments, and this $200 of accrued revenues was unrecorded at the time the trial balance was prepared.f. $800 of the Unearned Rent account balance was earned by year-end.g. The one employee, a receptionist, works a five-day workweek at $50 per day. The employee was paid last week but has worked four days this week for which she has not been paid.h. Three months' property taxes, totaling $450, have accrued. This additional amount of property taxes expense has not been recorded.i. One month's interest on the note payable, $600, has accrued but is unrecorded.Use the above information to prepare the adjusted trial balance for Glow Styling. What will be an ideal response?
The Association of Southeast Asian Nations (ASEAN) have agreed to the eventual goal of ________.
A. collective defense B. eliminating tariffs and non-tariff barriers between association member nations C. nuclear nonproliferation in the region D. forming a single sovereign nation
On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What is the journal entry that should be recorded by Watson Enterprises upon signing the note?
A. Debit Accounts Receivable $24,000; credit Notes Receivable $24,000. B. Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160. C. Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160. D. Debit Accounts Payable $24,160; credit Notes Payable $24,160. E. Debit Accounts Payable $24,000; credit Notes Payable $24,000.