INCLUDES ATTACHED FILES.  

Catalina Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Old Machine

Cost of machine, 10-year life                                                                 $75,000

Annual depreciation (straight-line)                                                            7,500

Annual manufacturing costs, excluding depreciation                           33,150

Annual non manufacturing operating expenses                                   10,000

Annual revenue                                                                                         60,000

Current estimated selling price of the machine                                    24,000

New Machine

Cost of machine, eight-year life                                                           $90,000

Annual depreciation (straight-line)                                                          11,250

Estimated annual manufacturing costs, 

       exclusive of depreciation                                                                  18,200

Annual non manufacturing operating expenses                                   10,000

Annual non manufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Instructions

1. Prepare a differential analysis report comparing operations utilizing the new machine with operations using the present equipment. The analysis should indicate the differential income that would result over the eight-year period if the new machine is acquired.

2. List other factors that should be considered before a final decision is reached. 

All of the above1 and 2 only3 and 4 only1, 2 and 3 only

For 1 points

Question 20

Ellen owns a disability income insurance policy, but she is a little confused about the policy’s terminology. The policy is guaranteed renewable and noncancellable. She asks you what these terms mean; they sound like the same thing. What do you tell her?

The premiums for noncancellable policies are adjustable and a guaranteed renewable policy cannot be cancelled prior to the policy expiration date (usually about age 65).

There is no difference between the two terms.

The premiums for noncancellable policies cannot be increased and a guaranteed renewable policy cannot be cancelled prior to the policy expiration date (usually about age 65).

For 1 points

Question 21

Fred’s wife Wilma suffered a stroke and is temporarily unable to care for herself and needs temporary care in a nursing home after she gets out of the hospital in a few days. Wilma is covered by original Medicare. Fred wants to know what nursing home care benefits are available from Medicare. You advise him that the nursing home benefits from Medicare are as follows:

Under Part A, all costs are covered for the first 100 days she is at a skilled nursing facility.

All costs for a skilled nursing facility are covered by Part B with 20% coinsurance.

Under Part A, all costs are covered for the first 20 days she is at a skilled nursing facility following a hospital stay of at least 3 days under Part A. The next 80 days are subject to a daily coinsurance amount.

Under Part A, all costs are covered for the first 20 days she is at a skilled nursing facility following a hospital stay of at least 3 days. After 20 days, Part A covers a skilled nursing facility indefinitely, subject to a daily coinsurance amount that increases over time.

For 1 points

Question 22

Betty is very confused about several insurance terms, including “risk, chance, perils and hazards.” You advise her that any condition that increases the frequency or severity of a loss is called: 

A hazard

A peril

A chance of loss

A risk

For 1 points

Question 23

When Mildred bought her new car, the finance company told her that she would need to make sure that comprehensive (other-than-collision) physical damage insurance coverage was included on the vehicle and the PAP must name them as the payee in case of total loss of the vehicle. The comprehensive portion of the physical damage coverage will pay if the car is damaged or destroyed by any of the following events, EXCEPT:

Theft

Earthquake

Vandalism

Flood

Hit-and-Run

For 1 points

Question 24

Tom just left military service with the Army. He needs to purchase health insurance for himself and his family. He is confused about Major Medical insurance policies, and comes to you for clarification. You tell him that a Major Medical insurance policy usually:

Guarantee that the premiums will never increase.

Includes unlimited lifetime maximum benefit limits to prevent a devastating impact on a family’s finances.

Excludes coverage for pre-existing conditions.

Covers most of the expenses covered by a basic hospitalization and surgical policy, but lowers the cost through deductibles and coinsurance.

For 1 points

Question 25

After discussing the need for insurance to protect her financial plan, your client, Laurie, is very confused about the difference between a hazard and a peril. She asks you, “Which of the following situations would be considered a peril?”

A can of gasoline placed near a space heater in her garage

A collision between her car and a commuter train if she is stuck on the tracks in traffic

All of the above

Her rotten oak tree leaning over her neighbor’s garage

A broken step on her front porch