E11-1 If Halley Industries
reimburses employees who earn master's degrees and who agree to remain with the
firm for an additional 3 years, should the expense of the tuition reimbursement
be categorized as a capital expenditure or an operating expenditure?
E11-2 Iridium Corp. has spent
$3.5 billion over the past decade developing a satellite-based
telecommunication system. It is currently trying to decide whether to spend an
additional $350 million on the project. The firm expects that this outlay will
finish the project and will generate cash flow of $15 million per year over the
next 5 years. A competitor has offered $450 million for the satellites already
in orbit. Classify the firm's outlays as sunk costs or opportunity costs, and
specify the relevant cash flows,
E11-3 Canvas Reproductions, Inc.,
has spent $4,500 dollars researching a new project. The project requires
$20,000 worth of new machinery, which would cost $3,000 to install. The company
would realize $4,500 in after-tax proceeds from the sale of old machinery. If
Canvas's working capital is unaffected by this project, what is the initial
investment amount for this project?
E11-4 A few years ago, Largo
Industries implemented an inventory auditing system at an installed cost of
$175,000. Since then, it has taken depreciation deductions totaling $124,250.
What is the system's current book value? If Largo sold the system for $110,000,
how much recaptured depreciation would result?
E11-5 Bryson Sciences is planning
to purchase a high-powered microscopy machine for $55,000 and incur an additional
$7,500 in installation expenses. It is replacing similar microscopy equipment
that can be sold to net $35,000, resulting in taxes from a gain on the sale of
$11,250. Because of this transaction, current assets will increase by $6,000
and current liabilities will increase by $4,000. Calculate the initial
investment in the high-powered microscopy machine.
- 8 years ago
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