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Question;One criticism of the;payback method is that it ignores cash flows that occur after the payback point;has been reached.;True;False;The simple rate of;return focuses on accounting net operating income rather than on cash flows.;True;False;If two projects require;the same amount of investment, then the preference ranking computed using;either the project profitability index or the net present value will be the;same.;True;False;Projects with shorter;payback periods are always more profitable than projects with longer payback;periods.;True;False;In comparing two;investment alternatives, the difference between the net present values of the;two alternatives obtained using the total cost approach will be the same as the;net present value obtained using the incremental cost approach.;True;False;The simple rate of;return method places its focus on cash flows instead of on accounting net;operating income.;True;False;Which one of the;following statements about the payback method of capital budgeting is correct?;The payback method;does not consider the time value of money.;The payback method;considers cash flows after the payback has been reached.;The payback method;uses discounted cash flow techniques.;The payback method will;lead to the same decision as other methods of capital budgeting.;If investment A has a;payback period of 3 years and investment B has a payback period of 4 years;then;A has a higher net;present value than B.;A has a lower net;present value than B.;A and B have the same;net present value.;the relation between;investment A's net present value and investment B's net present value cannot;be determined from the given information.;The capital budgeting;method that recognizes the time value of money by discounting cash flows over;the life of the project, using the company's required rate of return as the;discount rate is called the;simple rate of return;method.;net present value;method.;financing method.;payback method.;(Ignore income taxes in;this problem.) A piece of new equipment will cost $70,000. The equipment will;provide a cost savings of $15,000 per year for ten years, after which it will;have a $3,000 salvage value. If the required rate of return is 14%, the;equipment's net present value is closest to;$8,240;$(8,240);$23,888;$9,050;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? (closest to:) (Useexhibit11b-1,exhibit11b-2);rev: 12_14_2012;12_21_2012;$54,075;$62,370;$46,445;$70,000;(Ignore income taxes in;this problem.) The following data pertain to an investment proposal;The net present value of the proposed investment is closest to;$1,720;$6,064;$2,154;$2,025;(Ignore income taxes in;this problem.) The following data pertain to an investment proposal;The working capital would be released for use elsewhere when the project is;completed. What is the net present value of the project (closest to), using a;discount rate of 8 percent?;$2,566;$(251);$251;$5,251;(Ignore income taxes in;this problem.) Mcclam, Inc., is considering the purchase of a machine that;would cost $100,000 and would last for 9 years. At the end of 9 years, the;machine would have a salvage value of $23,000. The machine would reduce labor;and other costs by $19,000 per year. Additional working capital of $2,000 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;13% on all investment projects. The net present value of the proposed project;is closest to: (Useexhibit11b-1,exhibit11b-2);rev: 12_14_2012;12_21_2012;$3,833;$5,167;-$2,492;$11,514;(Ignore income taxes in;this problem.) The Gage Company purchased a machine which will be depreciated;by the straight-line method over its estimated 6 year life. The machine will;have no salvage value. It will generate cash inflows of $7,000 each year over;the next 6 years. Gage Company's required rate of return is 14%. If the net;present value of this investment is $12,016, the purchase price of the machine;was closest to;$30,016;$15,207;$17,916;$18,000;(Ignore income taxes in;this problem.) Girman Corporation is considering three investment projects: K;L, and M. Project K would require an investment of $27,000, Project L of;$59,000, and Project M of $88,000. No other cash outflows would be involved.;The present value of the cash inflows would be $31,860 for Project K, $66,080;for Project L, and $95,040 for Project M. Rank the projects according to the;profitability index, from most profitable to least profitable.;K,M,L;K,L,M;L,M,K;L,K,M;Perkins Company is;considering several investment proposals, as shown below;Rank the proposals in terms of preference using the project profitability;index;D, B, C, A;B, D, C, A;B, D, A, C;A, C, B, D;Blanding Company is;considering several investment proposals, as shown below;Using the project profitability index, the ranking would be;D, B, A, C;D, C, A, B;C, D, A, B;C, A, D, B;(Ignore income taxes in;this problem.) The Jackson Company has invested in a machine that cost $70,000;that has a useful life of seven years, and that has no salvage value at the end;of its useful life. The machine is being depreciated by the straight-line;method, based on its useful life. It will have a payback period of four years.;Given these data, the simple rate of return on the machine is closest to;7.1%;8.2%;10.7%;39.3%

Paper#39242 | Written in 18-Jul-2015

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