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45.
A
Medium
|
(Ignore income taxes in this problem.) A piece of equipment has a cost
of $20,000. The equipment will provide cost savings of $3,500 each year for
ten years, after which time it will have a salvage value of $2,500. If the
company's discount rate is 12%, the equipment's net present value is:
a. $580.
b. ($225).
c. $17,500.
d. $2,275.
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46.
D
Medium
|
(Ignore income taxes in this problem.) Parks Company is considering an
investment proposal in which a working capital investment of $10,000 would be
required. The investment would provide cash inflows of $2,000 per year for
six years. The working capital would be released for use elsewhere when the
project is completed. If the company's discount rate is 10%, the investment's
net present value is:
a. $1,290.
b. ($1,290).
c. $2,000.
d. $4,350.
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47.
A
Medium
|
(Ignore income taxes in this problem.) The following data pertain to an
investment proposal:
Investment in the project
(equipment) .. $14,000
Net annual cash inflows
promised ....... 2,800
Working capital required
............... 5,000
Salvage value of the
equipment ......... 1,000
Life of the project
.................... 10 years
The working capital would be released for use elsewhere when the
project is completed. What is the net present value of the project, using a
discount rate of 8%?
a. $2,566.
b. ($251).
c. $251.
d. $5,251.
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48.
C
Medium
|
(Ignore income taxes in this problem.) Boston Company is contemplating
the purchase of a new machine on which the following information has been
gathered:
Cost of the machine
............... $38,900
Annual cash inflows expected
...... $10,000
Salvage value
..................... $ 5,000
Life of the machine
............... 6 years
The company's discount rate is 16%, and the machine will be depreciated
using the straight-line method. Given these data, the machine has a net
present value of:
a. -$26,100.
b. -$23,900.
c. $0.
d. +$26,100.
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49.
B
Hard
|
(Ignore income taxes in this problem.) Benz Company is considering the
purchase of a machine that costs $100,000 and has a useful life of 18 years.
The company's required discount rate is 12%. If the machine's net present
value is $5,850, then the annual cash inflows associated with the machine
must be (round to the nearest whole dollar):
a. $42,413.
b. $14,600.
c. $13,760.
d. it is impossible to determine from the data given.
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50.
C
Hard
CPA adapted
|
(Ignore income taxes in this problem.) Horn Corporation is considering
investing in a four-year project. Cash inflows from the project are expected
to be as follows: Year 1, $2,000; Year 2, $2,200; Year 3, $2,400; Year 4,
$2,600. If using a discount rate of 8%, the project has a positive net
present value of $500, what was the amount of the original investment?
a. $1,411.
b. $2,411.
c. $7,054.
d. $8,054.
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51.
B
Medium
|
(Ignore income taxes in this problem.) The Whitton Company uses a
discount rate of 16%. The company has an opportunity to buy a machine now for
$18,000 that will yield cash inflows of $10,000 per year for each of the next
three years. The machine would have no salvage value. The net present value
of this machine to the nearest whole dollar is:
a. $22,460.
b. $4,460.
c. $(9,980).
d. $12,000.
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52.
D
Medium
|
(Ignore income taxes in this problem.) The following data pertain to an
investment:
Cost of the investment
........ $18,955
Life of the project
........... 5 years
Annual cost savings
........... $ 5,000
Estimated salvage value
....... $ 1,000
Discount rate ................. 10%
The net present value of the proposed investment is:
a. $3,355.
b. ($3,430).
c. $-0-.
d. $621.
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|
53.
D
Medium
|
(Ignore income taxes in this problem.) The following data pertain to an
investment proposal:
Cost of the investment
.......... $20,000
Annual cost savings
............. $ 5,000
Estimated salvage value
......... $ 1,000
Life of the project
............. 8 years
Discount rate
................... 16%
The net present value of the proposed investment is:
a. $1,720.
b. $6,064.
c. $2,154.
d. $2,025.
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|
54.
C
Hard
|
(Ignore income taxes in this problem.) Stratford Company purchased a
machine with an estimated useful life of seven years. The machine will
generate cash inflows of $90,000 each year over the next seven years. If the
machine has no salvage value at the end of seven years, and assuming the
company's discount rate is 10%, what is the purchase price of the machine if
the net present value of the investment is $170,000?
a. $221,950.
b. $170,000.
c. $268,120.
d. $438,120.
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|
55.
C
Medium
|
(Ignore income taxes in this problem.) Sam Weller is thinking of
investing $70,000 to start a bookstore. Sam plans to withdraw $15,000 from
the business at the end of each year for the next five years. At the end of
the fifth year, Sam plans to sell the business for $110,000 cash. At a 12%
discount rate, what is the net present value of the investment?
a. $54,075.
b. $62,370.
c. $46,445.
d. $70,000.
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|
56.
D
Hard
|
(Ignore income taxes in this problem.) Arthur operates a part-time auto
repair service. He estimates that a new diagnostic computer system will
result in increased cash inflows of $2,100 in Year 1, $3,200 in Year 2, and
$4,000 in Year 3. If Arthur's discount rate is 10%, then the most he would be
willing to pay for the new computer system would be:
a. $6,652.
b. $6,984.
c. $7,747.
d. $7,556.
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|
57.
C
Medium
|
(Ignore income taxes in this problem.) The following data pertain to an
investment proposal:
Present investment required
........ $26,500
Annual cost savings
................ $ 5,000
Projected life of the
investment ... 10 years
Projected salvage value
............ $ -0-
The internal rate of return, interpolated to the nearest tenth of a
percent, would be:
a. 11.6%.
b. 12.8%.
c. 13.6%.
d. 12.4%.
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|
58.
A
Medium
|
(Ignore income taxes in this problem.) The following data are available
on a proposed investment project:
Initial investment
......... $142,500
Annual cash inflows
........ $30,000
Life of the investment ..... 8 years
Required rate of return
.... 10%
The internal rate of return, interpolated to the nearest tenth of a
percent, would be:
a. 13.3%.
b. 12.1%.
c. 15.3%.
d. 12.7%.
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|
59.
C
Medium
|
(Ignore income taxes in this problem.) The following data pertain to an
investment proposal:
Present investment required
........ $14,000
Annual cost savings
................ $ 2,500
Projected life of the
investment ... 8 years
Projected salvage value
............ $ -0-
Required rate of return
............ 6%
The internal rate of return, interpolated to the nearest tenth of a
percent, would be:
a. 6.7%.
b. 9.3%.
c. 8.7%.
d. 7.3%.
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|
60.
A
Hard
|
(Ignore income taxes in this problem.) Overland Company has gathered
the following data on a proposed investment project:
Investment in depreciable
equipment .... $150,000
Annual cash flows
...................... $ 40,000
Life of the equipment
.................. 10 years
Salvage value
.......................... -0-
Discount rate
.......................... 10%
The internal rate of return on this investment is closest to:
a. 23.4%.
b. 25.4%.
c. 22.7%
d. 22.1%
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|
61.
A
Medium
|
(Ignore income taxes in this problem.) The following information
concerns a proposed investment:
Investment required
........ $14,150
Annual savings
............. $ 2,500
Life of the project ........
12 years
The internal rate of return is (do not interpolate):
a. 14%.
b. 12%.
c. 10%.
d. 5%.
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|
62.
A
Medium
|
(Ignore income taxes in this problem.) Jarvey Company is studying a
project that would have a ten-year life and would require a $450,000
investment in equipment that has no salvage value. The project would provide
net income each year as follows for the life of the project:
Sales ............................ $500,000
Less cash variable expenses
...... 200,000
Contribution margin
.............. 300,000
Less fixed expenses:
Fixed cash expenses
............ $150,000
Depreciation expenses
.......... 45,000 195,000
Net income
....................... $105,000
The company's required rate of return is 12%. What is the payback
period for this project?
a. 3 years
b. 2 years
c. 4.28 years
d. 9 years
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|
63.
A
Medium
|
(Ignore income taxes in this problem.) Buy-Rite Pharmacy has purchased
a small auto for delivering prescriptions. The auto was purchased for $9,000
and will have a 6-year useful life and a $3,000 salvage value. Delivering
prescriptions (which the pharmacy has never done before) should increase
gross revenues by at least $5,000 per year. The cost of these prescriptions
to the pharmacy will be about $2,000 per year. The pharmacy depreciates all
assets using the straight-line method. The payback period for the auto is:
a. 3.0 years.
b. 1.8 years.
c. 2.0 years.
d. 1.2 years.
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|
64.
C
Easy
|
(Ignore income taxes in this problem.) A company with $800,000 in
operating assets is considering the purchase of a machine that costs $75,000
and which is expected to reduce operating costs by $20,000 each year. The
payback period for this machine in years is closest to:
a. 0.27 years.
b. 10.7 years.
c. 3.75 years.
d. 40 years.
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|
65.
B
Easy
|
(Ignore income taxes in this problem.) The Higgins Company has just
purchased a piece of equipment at a cost of $120,000. This equipment will
reduce operating costs by $40,000 each year for the next eight years. This
equipment replaces old equipment that was sold for $8,000 cash. The new
equipment has a payback period of:
a. 8.0 years.
b. 2.8 years.
c. 10.0 years.
d. 3.0 years.
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|
66.
D
Medium
CMA adapted
|
(Ignore income taxes in this problem.) The Keego Company is planning a
$200,000 equipment investment that has an estimated five-year life with no
estimated salvage value. The company has projected the following annual cash
flows for the investment.
Year Cash Inflows
1 $120,000
2 60,000
3 40,000
4 40,000
5 40,000
Total $300,000
Assuming that the cash inflows occur evenly over the year, the payback
period for the investment is:
a. 0.75 years.
b. 1.67 years.
c. 4.91 years.
d. 2.50 years.
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|
67.
A
Hard
|
(Ignore income taxes in this problem.) Denny Corporation is considering
replacing a technologically obsolete machine with a new state-of-the-art
numerically controlled machine. The new machine would cost $450,000 and would
have a ten-year useful life. Unfortunately, the new machine would have no
salvage value. The new machine would cost $20,000 per year to operate and
maintain, but would save $100,000 per year in labor and other costs. The old
machine can be sold now for scrap for $50,000. The simple rate of return on
the new machine is closest to:
a. 8.75%.
b. 20.00%.
c. 7.78%.
d. 22.22%.
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|
68.
A
Medium
|
(Ignore income taxes in this problem.) The Jason Company is considering
the purchase of a machine that will increase revenues by $32,000 each year.
Cash outflows for operating this machine will be $6,000 each year. The cost
of the machine is $65,000. It is expected to have a useful life of five years
with no salvage value. For this machine, the simple rate of return is:
a. 20%.
b. 40%.
c. 49.2%.
d. 9.2%.
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|
69.
A
Easy
|
Perkins Company is considering several
investment proposals, as shown below:
Investment Proposal o
A B C D
Investment required ... $80,000
$100,000 $60,000 $75,000
Present value of future
net cash flows ......
96,000 150,000 84,000
120,000
Rank the proposals in terms of preference
using the
profitability index:
a. D, B, C, A.
b. B, D, C, A.
c. B, D, A, C.
d. A, C, B, D.
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|
70.
C
Easy
|
Information on four investment proposals is given below:
Proposal Investment Net Present Value
1 $50,000 $30,000
2 60,000 24,000
3 30,000 15,000
4 45,000 9,000
Rank the proposals in terms of preference according to the
profitability index:
a. 3, 4, 1, 2.
b. 1, 2, 3, 4.
c. 1, 3, 2, 4.
d. 2, 1, 4, 3.
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