California State University, Fullerton ACCT 201B ACCT 201B F18 - Practice Ch12 -VERIFIED BY EXPERTS-GRADED A+

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Practice Questions Chapter 12 1. In calculating the payback period where new equipment is replacing old equipment, any salvage value to be received on disposal of the old equipment should be added t... o the cost of the new equipment. A. True B. False 2. Harrison Corporation is studying a project that would have an eight-year life and would require a $300,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project: Sales $500,000 Less cash variable expenses 200,000 Contribution margin 300,000 Less fixed expenses: Fixed cash expenses $150,000 Depreciation expenses 37,500 187,500 Net operating income $112,500 The company's required rate of return is 10%. The payback period for this project is closest to: A. 3 years B. 2 years C. 2.5 years D. 2.67 years 3. Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $28,000 and will have a 6-year useful life and a $4,000 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $32,000 per year. The cost of these prescriptions to the pharmacy will be about $25,000 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to: A. 4 years B. 1.8 years C. 2 years D. 1.2 y [Show More]

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