(Ignore income taxes in this
problem.) Dumora Corporation is considering an investment project that will
require an initial investment of $9,400 and will generate the following net
cash inflows in each of the five years of its useful life:
|
|
|
Year
1
|
Year
2
|
Year
3
|
Year
4
|
Year
5
|
|
|
Net cash inflows....
|
$1,000
|
$2,000
|
$4,000
|
$6,000
|
$5,000
|
Dumora’s discount rate is 16%.
90. Dumora's
payback period for this investment project is closest to:
A) 1.91
years
B) 2.61
years
C) 2.89
years
D) 3.40
years
Ans: D AACSB: Analytic
AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
Solution:
|
|
Amount
|
Remaining
Balance
|
|
Initial investment.........
|
|
$9,400
|
|
Year 1 cash inflow.......
|
$1,000
|
$8,400
|
|
Year 2 cash inflow.......
|
$2,000
|
$6,400
|
|
Year 3 cash inflow.......
|
$4,000
|
$2,400
|
Year 4: $2,400 ÷ $6,000 = 0.4
Therefore, the payback period for
this investment is 3.4 years.
91. Dumora's
net present value for this investment project is closest to:
A) $(832)
B) $1,204
C) $1,376
D) $2,386
Ans: B AACSB: Analytic
AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium
Solution:
|
|
Year(s)
|
Amount
|
16%
Factor
|
PV
|
|
Cost savings−Year 1....
|
1
|
$1,000
|
0.862
|
$ 862
|
|
Cost savings−Year 2....
|
2
|
$2,000
|
0.743
|
1,486
|
|
Cost savings−Year 3....
|
3
|
$4,000
|
0.641
|
2,564
|
|
Cost savings−Year 4....
|
4
|
$6,000
|
0.552
|
3,312
|
|
Cost savings−Year 5....
|
5
|
$5,000
|
0.476
|
2,380
|
|
Initial investment.........
|
Now
|
($9,400)
|
1.000
|
( 9,400)
|
|
Net present value.........
|
|
|
|
$1,204
|
Use the following to answer
questions 92-93:
(Ignore income taxes in this
problem.) Vandezande Inc. is considering the acquisition of a new machine that
costs $370,000 and has a useful life of 5 years with no salvage value. The
incremental net operating income and incremental net cash flows that would be
produced by the machine are:
|
|
|
Incremental
net operating income
|
Incremental
net cash flows
|
|
|
Year 1.....
|
$54,000
|
$128,000
|
|
|
Year 2.....
|
$31,000
|
$105,000
|
|
|
Year 3.....
|
$52,000
|
$126,000
|
|
|
Year 4.....
|
$49,000
|
$123,000
|
|
|
Year 5.....
|
$48,000
|
$122,000
|
92. If
the discount rate is 10%, the net present value of the investment is closest
to:
A) $370,000
B) $457,479
C) $234,000
D) $87,479
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Source: CMA, adapted
Solution:
|
|
Year(s)
|
Amount
|
10%
Factor
|
PV
|
|
Initial investment...............
|
Now
|
($370,000)
|
1.000
|
($370,000)
|
|
Year 1 incremental net cash inflow.............................
|
1
|
$128,000
|
0.909
|
116,352
|
|
Year 2 incremental net cash inflow.............................
|
2
|
$105,000
|
0.826
|
86,730
|
|
Year 3 incremental net cash inflow.............................
|
3
|
$126,000
|
0.751
|
94,626
|
|
Year 4 incremental net cash inflow.............................
|
4
|
$123,000
|
0.683
|
84,009
|
|
Year 5 incremental net cash inflow.............................
|
5
|
$122,000
|
0.621
|
75,762
|
|
Net present value...............
|
|
|
|
$ 87,479
|
93. The
payback period of this investment, rounded off to the nearest tenth of a year,
is closest to:
A) 2.9
years
B) 4.9
years
C) 3.1
years
D) 5.0
years
Ans: C AACSB: Analytic
AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium Source: CMA, adapted
Solution:
|
|
Amount
|
Remaining
Balance
|
|
Initial investment.........
|
|
$370,000
|
|
Year 1 cash inflow.......
|
$128,000
|
$242,000
|
|
Year 2 cash inflow.......
|
$105,000
|
$137,000
|
|
Year 3 cash inflow.......
|
$126,000
|
$11,000
|
Year 4: $11,000 ÷ $123,000 = 0.1
(rounded to nearest tenth)
Therefore, the payback period for
this investment is 3.1 years.
Use the following to answer
questions 94-95:
(Ignore income taxes in this
problem.) Oriol Inc. is considering the acquisition of equipment that costs
$360,000 and has a useful life of 6 years with no salvage value. The
incremental net cash flows that would be generated by the equipment are:
|
|
|
Incremental net cash flows
|
|
|
Year 1........
|
$115,000
|
|
|
Year 2........
|
$138,000
|
|
|
Year 3........
|
$95,000
|
|
|
Year 4........
|
$91,000
|
|
|
Year 5........
|
$133,000
|
|
|
Year 6........
|
$134,000
|
94. If
the discount rate is 19%, the net present value of the investment is closest
to:
A) $346,000
B) $398,667
C) $38,667
D) $121,841
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CMA, adapted
Solution:
|
|
Year(s)
|
Amount
|
19%
Factor
|
PV
|
|
Initial investment...............
|
Now
|
($360,000)
|
1.000
|
($360,000)
|
|
Year 1 incremental net cash inflow.............................
|
1
|
$115,000
|
0.840
|
96,600
|
|
Year 2 incremental net cash inflow.............................
|
2
|
$138,000
|
0.706
|
97,428
|
|
Year 3 incremental net cash inflow.............................
|
3
|
$95,000
|
0.593
|
56,335
|
|
Year 4 incremental net cash inflow.............................
|
4
|
$91,000
|
0.499
|
45,409
|
|
Year 5 incremental net cash inflow.............................
|
5
|
$133,000
|
0.419
|
55,727
|
|
Year 6 incremental net cash inflow.............................
|
6
|
$134,000
|
0.352
|
47,168
|
|
Net present value...............
|
|
|
|
$38,667
|
95. The
payback period of this investment is closest to:
A) 4.1
years
B) 2.9
years
C) 5.0
years
D) 3.1
years
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy Source: CMA, adapted
Solution:
|
|
Amount
|
Remaining
Balance
|
|
Initial investment.........
|
|
$360,000
|
|
Year 1 cash inflow.......
|
$115,000
|
245,000
|
|
Year 2 cash inflow.......
|
138,000
|
107,000
|
|
Year 3 cash inflow.......
|
95,000
|
12,000
|
Year 4: $12,000 ÷ $91,000 = 0.1
(rounded to nearest tenth)
Therefore, the payback period for
this investment is 3.1 years.
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