Three potential investment projects (A, B, and C) at Nit Corporation all require the same initial investment, have the same useful life (3 years), and have no expected salvage value. Expected net cash inflows from these three projects each year is as follows:

Three potential investment projects (A, B, and C) at Nit Corporation all require the same initial investment, have the same useful life (3 years), and have no expected salvage value. Expected net cash inflows from these three projects each year is as follows:

What can be determined from the information provided above?
A. the net present value of project C will be the highest.
b. the internal rate of return of projects A and C cannot be computed.
c. the net present value and the internal rate of return will be the same for all three projects.
d. both A and B above.

16. A project's net present value, ignoring income taxes, is affected by:
a. the net book value of an asset that is replaced.
b. the depreciation on an asset that is replaced.
c. the depreciation to be taken on assets used directly on the project.
D. proceeds from the sale of an asset that is replaced.

17. A preference decision:
a. is concerned with whether a project clears the minimum required rate of return hurdle.
b. comes before the screening decision.
C. is concerned with determining which of several acceptable alternatives is best.
d. responses A, B, and C are all correct.

 18. (Ignore income taxes in this problem.) The Malaise Prevention Agency is a non-profit organization that does all of its own informational printing. The printing press that Malaise currently is using needs a $20,000 overhaul. This will extend the useful life of the press by 8 years. As an alternative, Malaise could buy a brand new modern press for $45,000. The new press would also last 8 years. The annual operating expenses of the old press are $12,000. The annual operating expenses of the new press will only be $7,000. The old press is not expected to have a salvage value in 8 years. The new press is expected to have a $6,000 salvage value in 8 years. Malaise's discount rate is 14%. The net present value of the decision to buy the new press instead of overhauling the old press is closest to:
A. $301
b. $(301)
c. $4,195
d. $(46,089)

 19. (Ignore income taxes in this problem) The management of Penfold Corporation is considering the purchase of a machine that would cost $440,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimum pretax return of 16% on all investment projects. The net present value of the proposed project is closest to:
A. -$28,022
b. $96,949
c. -$79,196
d. $274,000

 

20. (Ignore income taxes in this problem.) Nevus Tattoo Parlor is considering a capital budgeting project. This project will initially require a $25,000 investment in equipment and a $3,000 working capital investment. The useful life of this project is 5 years with an expected salvage value of zero on the equipment. The working capital will be released at the end of the 5 years. The new system is expected to generate net cash inflows of $9,000 per year in each of the 5 years. Nevus' discount rate is 14%. The net present value of this project is closest to:
a. $(3,088)
b. $3,383
C. $4,454
d. $5,897

 

21. (Ignore income taxes in this problem) The management of Elamin Corporation is considering the purchase of a machine that would cost $365,695 and would have a useful life of 9 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $61,000 per year. The internal rate of return on the investment in the new machine is closest to:
A. 9%
b. 11%
c. 12%
d. 10%

Factor of the internal rate of return

22. When cash flows are uneven and vary from year to year, the internal rate of return method is easier to use than the net present value method.
FALSE

23. (Ignore income taxes in this problem.) Paragas, Inc., is considering the purchase of a machine that would cost $370,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $52,000. The machine would reduce labor and other costs by $96,000 per year. Additional working capital of $4,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 19% on all investment projects.

Garrison - Chapter 14
 

The net present value of the proposed project is closest to:
a. $9,584
b. $78,530
c. $22,532
D. $19,528

 
Thanks