Waymire Company sells a motor that carries a 60-day unconditional warranty against product failure. Waymire estimates that between the sale and lapse of the product warranty, 2% of the 69,000 units sold this period will require repair at an average cost of $50 per unit. The warranty liability for this product had a beginning-of-period balance of $30,000, and $27,000 has already been spent on warranty repairs and replacements during the period. Required
How much warranty expense must Waymire report in its income statement and what amount of warranty liability must it report on its balance sheet for this year?

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Shrieves casting company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by sidney johnson, a recently graduated mba. the production line would be set up in unused space in the main plant. the machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. the machinery has an economic life of 4 years, and shrieves has obtained a special tax ruling that places the equipment in the macrs 3-year class. the machinery is expected to have a salvage value of $25,000 after 4 years of use. the new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. each unit can be sold for $200 in the first year. the sales price and cost are both expected to increase by 3% per year due to inflation. further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 12% of sales revenues. the firm’s tax rate is 40%, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project (r), is 10%. define “incremental cash flow.” (1) should you subtract interest expense or dividends when calculating project cash flow?

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