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    ACCGT7 CHP13 PPT

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    John Lester C Alag
    The document contains 3 examples of calculating after-tax costs and benefits when given pre-tax amounts and a tax rate of 30%. 1) For a consulting fee of P100,000, the after-tax cost is P70,000. 2) For increased annual revenues of P40,000, the after-tax benefit is P28,000. 3) For a P210,000 scoreboard depreciated over 7 years, the annual tax savings from depreciation is P21,000. The document also contains an example calculating the net present value of an investment in shares to determine if a 12% minimum return was earned. It was determined that the negative N

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    ACCGT7 CHP13 PPT

    Uploaded by

    John Lester C Alag
    314 views7 pages
    The document contains 3 examples of calculating after-tax costs and benefits when given pre-tax amounts and a tax rate of 30%. 1) For a consulting fee of P100,000, the after-tax cost is P70,000. 2) For increased annual revenues of P40,000, the after-tax benefit is P28,000. 3) For a P210,000 scoreboard depreciated over 7 years, the annual tax savings from depreciation is P21,000. The document also contains an example calculating the net present value of an investment in shares to determine if a 12% minimum return was earned. It was determined that the negative N

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    Chap 13 exercises cost accounting

    Original Title

    ACCGT7CHP13ppt

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    The document contains 3 examples of calculating after-tax costs and benefits when given pre-tax amounts and a tax rate of 30%. 1) For a consulting fee of P100,000, the after-tax cost is P70,000. 2) For increased annual revenues of P40,000, the after-tax benefit is P28,000. 3) For a P210,000 scoreboard depreciated over 7 years, the annual tax savings from depreciation is P21,000. The document also contains an example calculating the net present value of an investment in shares to determine if a 12% minimum return was earned. It was determined that the negative N

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    314 views7 pages

    ACCGT7 CHP13 PPT

    Uploaded by

    John Lester C Alag
    The document contains 3 examples of calculating after-tax costs and benefits when given pre-tax amounts and a tax rate of 30%. 1) For a consulting fee of P100,000, the after-tax cost is P70,000. 2) For increased annual revenues of P40,000, the after-tax benefit is P28,000. 3) For a P210,000 scoreboard depreciated over 7 years, the annual tax savings from depreciation is P21,000. The document also contains an example calculating the net present value of an investment in shares to determine if a 12% minimum return was earned. It was determined that the negative N

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 7

    CHAPTER 13 : EXERCISE 3 (AFTER-TAX COSTS)

    REPORTER: CHRISTY HANNAH B. BANGA

    a.) Sugar Company has hired a management consulting firm to review


    and make recommendations concerning Sugar’s organization structure.
    The consulting firm’s fee will be P100,000. What will be the after-tax cost
    of the consulting firm’s fee if Sugar’s tax rate is 30%?

    Solution:
    Management Consulting Fee P 100,000
    Multiply by: (100%-30%) 70%
    After Tax Cost P 70,000
    b.) The Royal Riding Club has redirected its advertising toward a
    different sector of the market. As a result of this change in advertising,
    the club’s annual revenues have increased by P40,000. If the club’s tax
    rate is 30%, what is the after-tax benefit from the increased revenues?

    Solution:
    Increased Revenue P 40,000
    Multiply (100%-30%) 70%
    After Tax Cost P 28,000
    c.) The Sparkling Stars Basketball Team has just installed an electronic
    scoreboard in its playing arena at a cost of P 210,000. For tax purposes,
    the entire original cost of the electronic scoreboard will be depreciated
    over seven years, using straight-line method. Determine the yearly tax
    savings from the depreciation tax shield. Assume that the income tax
    rate is 30%.

    Solution:
    Annual Depreciation P 30,000
    (P 210,000/7years)
    Multiply (100%-30%) 70%
    After Tax Cost P 21,000
    CHAPTER 13: EXERCISE 4 (BASIC NET PRESENT VALUE ANALYSIS)
    REPORTER: CHRISTY HANNAH B. BANGA

    On January 2, Pebbles Cruz paid P 18,000 for 900 shares of Rainbow


    Company. Ms. Cruz received an P 0.80 per share dividend on the shares
    at the end of each year for four years. At the end of four years, she sold
    the shares for P 22,500. Ms. Cruz has a goal of earning a minimum
    return of 12% on all of her investment.

    Required:
    (Ignore income taxes) Did Ms. Cruz earn 12% return on the share? Use
    the net present value method and the general format. Round all
    computations to the nearest whole peso.
    Present Value of Annual Cash Inflows for 4 periods at 12%?

    [(900 x 0.80) x 3.03735] P 2,187


    Sales ( P 22,500 x 0.63552) 14,299
    Total Cash Inflows P 16,486
    Less: Present Value of Net Investment 18,000
    Net Present Value P ( 1,514)

    1
    DISCOUNT FACTOR= (1x(1+ DISCOUNT RATE) ^ PERIOD NUMBER)

    1/(1+12%)^1)=0.89286
    1/(1+12%)^2)=0.79719
    1/(1+12%)^3)=0.71178
    1/(1+12%)^4)= 0.63552
    Total = 3.03735
    Another Solution:
    Year(s) Amount of 12% Present Value
    Cash FlowsFactor of Cash Flows

    Purchase of Now P (18,000) 1.0000 P (18,000)


    the stock

    Annual 1-4 P 720 3.03735 2,187


    Dividends

    Sale of the 4 P 22,500 0.635 52 14,299


    stock

    Net Present Value P ( 1,514)

    *900 shares x P 0.80 per share per year = P 720 per year
    Did Ms. Cruz earn 12% return on the share?

    No, Ms. Cruz did not earn a 12% return on the share. The
    negative net present value indicates that the rate of return on
    the investment is less than the discounts rate of 12%.

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