Wrigley’s Wrecker Service is considering the purchase of a specialized tow truck for its small fleet.

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Question 1.  Wrigley’s Wrecker Service is considering the purchase of a specialized tow truck for its

small fleet. This new piece of equipment will cost $100,000 and should be serviceable for 10 years, with an expected residual value of $20,000 at the end of its service life. Wrigley’s believes this specialized tow truck will grow some new business by enabling the company to respond to extra heavy duty towing jobs on the nearby interstate highway, and it’s estimated this will add another $40,000 to annual net cash flow. The table below summarizes the pertinent data supporting the analysis for this acquisition.

Investment in new tow truck $ 100,000
Useful life 10 years
Estimated annual net

cash inflows for next 10 years

 $ 40,000
Residual value of equipment $ 20,000
Depreciation method straight-line
Required rate of return 10%

Part A.  Calculate the payback period for this investment.

Part B.  Calculate the accounting rate of return for this investment.

Question 2.  Wally White is considering the purchase of a new automatic car wash system that could be installed on an open, unused section of the parking lot of his drug store business. The new system will cost $40,000, and with an 8-year useful life will have an estimated residual value of $10,000. It’s also estimated that this car wash unit will generate net cash inflows of $12,000 per year over its 8-year life. If White requires a 10% return on his money, what is the net present value (NPV) of this project?

 

Question 3.  Polaris Manufacturing is evaluating an investment in a new drilling machine that would cost $48,000. Polaris estimates that it will realize $12,000 in annual net cash inflows for each year of the machine’s 6-year useful life. What is the internal rate of return (IRR) for this proposed investment? You may use Excel or also feel free to approximate this answer using present value tables.

 
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BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200.

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BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was expected to remain in

service 4 years (30,000 miles).  BagODonuts’ accountant estimated that the truck’s residual value would be $2,400 at the end of its useful life.  The truck traveled 8,000 miles the first year, 8,500 miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year.

1. Calculate depreciation expense for the truck for each year (2010-2013) using the:

a. Straight-line method.

b. Double-declining balance method.

c. Units of Production method.

(For units-of-production and double-declining balance, round to the nearest two decimals after each step of the calculation.)

2. Which method best tracks the wear and tear on the van?

3. Which method would BagODonuts prefer to use for income tax purposes?  Explain in detail why BagODonuts prefers this method.

 
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Please describe the differences of how IFRS differs from U.S. GAAP in respect to deferred taxes.

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Please describe the differences of how IFRS differs from U.S. GAAP in respect to deferred taxes.

You

have only 2 hours to answer the above question. Please answer it asap within the time frame.

 
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If the two columns of a trial balance are equal, does it mean that there are no errors in the accounting records?

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If the two columns of a trial balance are equal, does it mean that there are no errors in the accounting records?

Explain.

If the totals of the trial balance columns do not equal, what are some corrective actions that might be taken to find the error?

 
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