Five Years Ago,Burton Company Purchased Equipment with an Expected Useful

question 31

Essay

Five years ago,Burton Company purchased equipment with an expected useful life of 5 years.The initial cost of the equipment was $160,000.Burton's cost of capital is 12%; when it purchased the equipment,Burton computed a net present value of $15,824 for the investment.During the current year,the equipment reached the end of its useful life.Burton determined that,over the 5-year life,the equipment had generated annual cash inflows of $46,000.
Required:
Conduct a post-audit to determine whether the equipment achieved the net present value the company had expected.Based on the results actually achieved,was the asset in fact an acceptable investment? (PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.)

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Definitions:

NCI

Non-Controlling Interest, a stake in a company that is not sufficient to yield control over the company, representing ownership by minority shareholders.

Profit

The financial gain derived from a transaction or the operation of a business after subtracting expenses.

Inter-Entity Transactions

Transactions that occur between two divisions within the same company, often used for the purpose of allocating costs or revenues between those divisions.

NCI Adjustment

Adjustments made to account for the non-controlling interest's share in the equity of a subsidiary.