Shields Company has gathered the following data on a proposed investment project:

Shields Company has gathered the following data on a proposed investment project:

    Investment required in equipment ..... $400,000

    Annual cash inflows ..................  $80,000

    Salvage value ........................     $-0-

    Life of the investment ...............  10 years

    Discount rate ........................    10%

71. D Easy Refer To: 14-1	The payback period for the investment is closest to: a. 0.2 years. b. 1.0 years. c. 3.0 years. d. 5.0 years.
72. B Medium Refer To: 14-1	The simple rate of return on the investment is closest to: a. 5%. b. 10%. c. 15%. d. 20%.
73. C Medium Refer To: 14-1	The net present value on this investment is closest to: a. $400,000. b. $80,000. c. $91,600. d. $76,750.
74. C Medium Refer To: 14-1	The internal rate of return on the investment is closest to: a. 11%. b. 13%. c. 15%. d. 17%.

Reference: 14-2

(Ignore income taxes in this problem.) Bugle's Bagel Bakery is investigating the purchase of a new bagel making machine. This machine would provide an annual operating cost savings of $3,650 for each of the next 4 years. In addition, this new machine would allow the production of one new type of bagel that would result in selling 1,500 dozen more bagels each year. The company earns a contribution margin of $0.90 on each dozen bagels sold. The purchase price of this machine is $13,450 and it will have a 4-year useful life. Bugle's discount rate is 14%.

75. D Medium Refer To: 14-2	The total annual cash inflow from this machine for capital budgeting purposes is: a. $3,650. b. $5,150. c. $4,750. d. $5,000.
76. C Medium Refer To: 14-2	The internal rate of return for this investment is closest to: a. 14%. b. 16%. c. 18%. d. 20%.

77. A Medium Refer To: 14-2

The net present value of this investment is closest to: a. $1,120. b. $6,550. c. $13,450. d. $20,000.

Reference: 14-3

(Ignore income taxes in this problem.) Treads Corporation is considering the replacement of an old machine that is currently being used. The old machine is fully depreciated but can be used by the corporation for five more years. If Treads decides to replace the old machine, Picco Company has offered to purchase the old machine for $60,000. The old machine would have no salvage value in five years.

  The new machine would be acquired from Hillcrest Industries for $1,000,000 in cash. The new machine has an expected useful life of five years with no salvage value. Due to the increased efficiency of the new machine, estimated annual cash savings of $300,000 would be generated.

  Treads Corporation uses a discount rate of 12%.

78. C Medium Refer To:  14-3	The net present value of the project is closest to: a. $171,000. b. $136,400. c. $141,500. d. $560,000.
79. C Medium Refer To: 14-3	The internal rate of return of the project is closest to: a. 14%. b. 16%. c. 18%. d. 20%.

Reference: 14-4

(Ignore income taxes in this problem.) Oriental Company has gathered the following data on a proposed investment project:

    Investment in depreciable equipment ..... $200,000

    Annual net cash flows ................... $ 50,000

    Life of the equipment ................... 10 years

    Salvage value ...........................   -0-

    Discount rate ...........................   10%

The company uses straight-line depreciation on all equipment.

80. D Medium Refer To: 14-4

The payback period for the investment would be: a. 2.41 years. b. 0.25 years. c. 10 years. d. 4 years.

81. C Medium Refer To: 14-4	The simple rate of return on the investment would be: a. 10%. b. 35%. c. 15%. d. 25%.
82. B Medium Refer To: 14-4	The net present value of this investment would be: a. ($14,350). b. $107,250. c. $77,200. d. $200,000.

Reference: 14-5

(Ignore income taxes in this problem.) Apex Corp. is planning to buy production machinery costing $100,000. This machinery's expected useful life is five years, with no residual value. Apex uses a discount rate of 10% and has calculated the following data pertaining to the purchase and operation of this machinery:

                    Estimated

                    annual net

      Year         cash inflow

       1            $ 60,000

       2              30,000

       3              20,000

       4              20,000

       5              20,000

83. A Medium CPA adapted Refer To: 14-5	The payback period is: a. 2.50 years. b. 2.75 years. c. 3.00 years. d. 5.00 years.
84. A Medium CPA adapted Refer To: 14-5	The net present value is closest to: a. $20,400. b. $28,400. c. $80,000. d. $50,000.