Use the Information for the Question(s) Below

question 65

Essay

Use the information for the question(s) below.
Kinston Industries is considering investing in a machine that will cost $125,000 and will last for three years. The machine will generate revenues of $120,000 each year and the cost of goods sold will be 50% of sales. At the end of year three the machine will be sold for $15,000. The appropriate cost of capital is 10% and Kinston is in the 35% tax bracket.
-Assume that Kinston's new machine will be depreciated using MACRS according to the following schedule:

What is the NPV of this project?

Analyze the effects of sales transactions on revenue recognition and the calculation of net sales.

Apply the knowledge of sales revenue recording, including the impact of cash and credit sales.

Distinguish between different types of accounts (asset, contra asset, revenue, contra revenue) and their roles in accounting for sales transactions.

Understand the process of adjusting entries and their impact on the financial statements.

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Definitions:

Credit Card

A card issued by a financial institution that allows the cardholder to borrow funds with which to pay for goods and services with the promise to repay these funds, plus any agreed charges.

Over-optimism

The tendency to overestimate the likelihood of positive outcomes in the future.

Consumer

An individual or group that purchases goods or services for personal use.

Perceived Budget Line

A graphical representation of all possible combinations of goods that a consumer can purchase with a given budget, based on their perception of available resources.