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##### Accounting Test Bank mcq

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solution

**Question**

Question;29. (Ignore;income taxes in this problem.) Mercredi, Inc., is considering investing in;automated equipment with a ten-year useful life. Managers at Highpoint have;estimated the cash flows associated with the tangible costs and benefits of;automation, but have been unable to estimate the cash flows associated with the;intangible benefits. Using the company's 14% required rate of return, the net;present value of the cash flows associated with just the tangible costs and;benefits is a negative $182,560. How large would the annual net cash inflows;from the intangible benefits have to be to make this a financially acceptable;investment?;A.;$18,256;B.;$26,667;C.;$35,000;D.;$38,000;30.;(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;A.;$8,240;B.;$(8,240);C.;$23,888;D.;$9,050;31. (Ignore;income taxes in this problem.) Sibble Corporation is considering the purchase;of a machine that would cost $330,000 and would last for 5 years. At the end of;5 years, the machine would have a salvage value of $50,000. By reducing labor;and other operating costs, the machine would provide annual cost savings of;$76,000. The company requires a minimum pretax return of 12% on all investment projects.;The net present value of the proposed project is closest to;A.;-$56,020;B.;-$6,020;C.;-$48,764;D.;-$27,670;32. (Ignore;income taxes in this problem.) Benz Company is considering the purchase of a;machine that costs $100,000, has a useful life of 18 years, and no salvage;value. The company's 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.;35. (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;36. (Ignore;income taxes in this problem.) The following data pertain to an investment;proposal;The net present value of the;proposed investment is;A.;$1,720;B.;$6,064;C.;$2,154;D.;$2,025;37. (Ignore;income taxes in this problem) The management of Serpas Corporation is;considering the purchase of a machine that would cost $180,000, would last for;5 years, and would have no salvage value. The machine would reduce labor and;other costs by $46,000 per year. The company requires a minimum pretax return of;13% on all investment projects. The net present value of the proposed project;is closest to;A.;$27,138;B.;$50,000;C.;-$18,218;D.;-$33,565;38. (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;A.;$30,016;B.;$15,207;C.;$17,916;D.;$18,000;39. (Ignore;income taxes in this problem.) Stutz Company purchased a machine with an;estimated useful life of seven years. The machine will generate cash inflows of;$8,000 each year over the next seven years. If the machine has no salvage value;at the end of seven years, if Stutz's discount rate is 12%, and if the net;present value of this investment is $15,000, then the purchase price of the;machine was;A.;$17,888;B.;$36,512;C.;$15,000;D.;$21,512;40. (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;A.;$3,833;B.;$5,167;C.;-$2,492;D.;$11,514;41. (Ignore;income taxes in this problem.) Charley has a typing service. He estimates that;a new computer will result in increased cash inflow $1,600 in Year 1, $2,000 in;Year 2 and $3,000 in Year 3. If Charley's required rate of return is 12%, the;most that Charley would be willing to pay for the new computer would be;A.;$4,623;B.;$5,159;C.;$3,294;D.;$4,804;42. (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;43. (Ignore;income taxes in this problem.) The following data pertain to an investment in;equipment;At the completion of the project;the working capital will be released for use elsewhere. Compute the net present;value of the project, using a discount rate of 10%;A.;$606;B.;$8,271;C.;$(1,729);D.;$1,729;44. (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, using a discount rate of 8 percent?;A.;$2,566;B.;$(251);C.;$251;D.;$5,251;45. (Ignore;income taxes in this problem.) The Valentine Company has decided to buy a;machine costing $14,750. Estimated cash savings from using the new machine;amount to $4,500 per year. The machine will have no salvage value at the end of;its useful life of five years. If Valentine's required rate of return is 10%;the machine's internal rate of return is closest to;A.;10%;B.;12%;C.;14%;D.;16%;46. (Ignore;income taxes in this problem.) If an investment of $14,760 now will yield;$18,000 at the end of one year, then the internal rate of return for this;investment to the nearest whole percentage is;A.;14%;B.;18%;C.;22%;D.;28%;47. (Ignore;income taxes in this problem.) Duhl Long-Haul, Inc., is considering the;purchase of a tractor-trailer that would cost $126,175, would have a useful;life of 5 years, and would have no salvage value. The tractor-trailer would be;used in the company's hauling business, resulting in additional net cash;inflows of $35,000 per year. The internal rate of return on the investment in;the tractor-trailer is closest to;A.;10%;B.;15%;C.;13%;D.;12%;48. (Ignore;income taxes in this problem.) Mongon Roofing is considering the purchase of a;crane that would cost $40,224, would have a useful life of 5 years, and would;have no salvage value. The use of the crane would result in labor savings of;$12,000 per year. The internal rate of return on the investment in the crane is;closest to;A.;17%;B.;14%;C.;15%;D.;18%;49. (Ignore;income taxes in this problem) The management of Mazor Corporation is;considering the purchase of a machine that would cost $144,144 and would have a;useful life of 5 years. The machine would have no salvage value. The machine;would reduce labor and other operating costs by $39,000 per year. The internal;rate of return on the investment in the new machine is closest to;A.;14%;B.;13%;C.;12%;D.;11%;50. (Ignore;income taxes in this problem) Lett Corporation is investigating buying a small;used aircraft for the use of its executives. The aircraft would have a useful;life of 7 years. The company uses a discount rate of 15% in its capital;budgeting. The net present value of the investment, excluding the salvage value;of the aircraft, is -$578,739. Management is having difficulty estimating the;salvage value of the aircraft. To the nearest whole dollar how large would the;salvage value of the aircraft have to be to make the investment in the aircraft;financially attractive?;A.;$578,739;B.;$86,811;C.;$3,858,260;D.;$1,539,199;51. (Ignore;income taxes in this problem) The management of Hirsh Corporation is investigating;an investment in equipment that would have a useful life of 9 years. The;company uses a discount rate of 13% in its capital budgeting. The net present;value of the investment, excluding the annual cash inflow, is -$666,493. To the;nearest whole dollar how large would the annual cash inflow have to be to make;the investment in the equipment financially attractive?;A.;$86,644;B.;$666,493;C.;$74,055;D.;$129,870;52. (Ignore;income taxes in this problem) The management of Londo Corporation is;investigating buying a small used aircraft to use in making airborne;inspections of its above-ground pipelines. The aircraft;would;have a useful life of 6 years. The company uses a discount rate of 15% in its;capital budgeting. The net present value of the investment, excluding the;intangible benefits, is -$474,060. To the nearest whole dollar how large would;the annual intangible benefit have to be to make the investment in the aircraft;financially attractive?;A.;$474,060;B.;$125,280;C.;$79,010;D.;$71,109;53. (Ignore;income taxes in this problem.) Cottrell, Inc., is investigating an investment;in equipment that would have a useful life of 9 years. The company uses a;discount rate of 15% in its capital budgeting. The net present value of the;investment, excluding the salvage value, is -$230,392. To the nearest whole;dollar how large would the salvage value of the equipment have to be to make;the investment in the equipment financially attractive?;A.;$1,535,947;B.;$34,559;C.;$811,239;D.;$230,392;54. (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.;A.;K, M, L;B.;K, L, M;C.;L, M, K;D.;L, K, M;55.;Logan Company is considering two projects, A and;B. The following information has been gathered on;these;projects: Based on this information, which of the;following statements is (are) true?;I.;Project A has the highest ranking according to the project profitability index;criterion. II. Project B has the highest ranking according to the net present value;criterion.;A.;Only I;B.;Only II;C.;Both I and II;D.;Neither I nor II;56. (Ignore;income taxes in this problem.) The management of Dewitz Corporation is;considering a project that would require an initial investment of $65,000. No;other cash outflows would be required. The present value of the cash inflows;would be $72,800. The profitability index of the project is closest;to;A.;0.12;B.;1.12;C.;0.88;D.;0.11;57.;(Ignore income taxes in this problem.) The;management of Dittrick Corporation is considering the;following;three investment projects: Rank the projects according to the;profitability index, from most profitable to least profitable.;A.;I, J, K;B.;K, J, I;C.;J, K, I;D.;I, K, J;58. A;project requires an initial investment of $60,000 and has a project;profitability index of 0.329. The present value of the future cash inflows from;this investment is;A.;$79,740;B.;$45,147;C.;$60,000;D.;Cannot be determined with;available data.;59.;Blanding Company is considering several investment;proposals, as shown;below: Using;the project profitability index, the ranking would be;A.;D, B, A, C;B.;D, C, A, B;C.;C, D, A, B;D.;C, A, D, B;60.;(Ignore income taxes in this;problem.) Deibel Corporation is considering a project that would require an;investment of $59,000. No other cash outflows would be involved. The present;value of the cash inflows would be $66,080. The profitability index of the;project is closest to;A.;0.88;B.;0.12;C.;1.12;D.;0.11

Paper#42657 | Written in 18-Jul-2015

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