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##### Accounting Test Bank mcq

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solution

**Question**

Question;61.;Perkins Company is considering several investment;proposals, as shown;below: Rank;the proposals in terms of preference using the project profitability index;A.;D, B, C, A;B.;B, D, C, A;C.;B, D, A, C;D.;A, C, B, D;62.;(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;A.;7.1%;B.;8.2%;C.;10.7%;D.;39.3%;63.;(Ignore income taxes in this;problem.) Czaplinski Corporation is considering a project that would require an;investment of $323,000 and would last for 7 years. The incremental annual;revenues and expenses;generated by the project during;those 7 years would be as follows: The scrap value of the project's assets at the;end of the project would be $22,000. The payback period of the project is;closest to;A.;9.7 years;B.;4.4 years;C.;4.1 years;D.;10.4 years;64. (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;65. (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 which 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;66. (Ignore;income taxes in this problem.) The management of Rusell Corporation is;considering a project that would require an investment of $282,000 and would;last for 6 years. The annual net operating income from the project would be;$107,000, which includes depreciation of $43,000. The scrap value of the project's;assets at the end of the project would be $24,000. The payback period of the;project is closest to;A.;1.9 years;B.;2.4 years;C.;1.7 years;D.;2.6 years;67. (Ignore;income taxes in this problem.) Rogers Company is studying a project that would have;a ten-year life and would require an $800,000 investment in equipment which has;no salvage value. The project would provide net operating income each year as;follows for the life of the project;The company's required rate of;return is 8%. What is the payback period for this project?;A.;3 years;B.;6.67 years;C.;2 years;D.;4 years;68. (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%;69. (Ignore;income taxes in this problem.) Blaine Corporation is considering replacing a;technologically obsolete machine with a new state-of-the-art numerically;controlled machine. The new machine would cost $180,000 and would have a;ten-year useful life. Unfortunately, the new machine would have no salvage;value. The new machine would cost $12,000 per year to operate and maintain, but;would save $48,000 per year in labor and other costs. The old machine can be;sold now for scrap for $20,000. What is the simple rate of return on the new machine;(round off your answer to the nearest one-hundredth of a percent)?;A.;10.00%;B.;26.67%;C.;22.50%;D.;11.25%;70. (Ignore;income taxes in this problem.) The management of Burney Corporation is;investigating purchasing equipment that would increase sales revenues by;$74,000 per year and cash operating expenses by $32,000 per year. The equipment;would cost $115,000 and have a 5 year life with no salvage value. The simple;rate of return on the investment is closest to;A.;36.5%;B.;25.7%;C.;20.0%;D.;16.5%;71. (Ignore;income taxes in this problem.) Tu Corporation is investigating automating a;process by purchasing a machine for $423,000 that would have a 9 year useful;life and no salvage value. By automating the process, the company would save;$112,000 per year in cash operating costs. The new machine would replace some;old equipment that would be sold for scrap now, yielding $27,000. The annual;depreciation on the new machine would be $47,000. The simple rate of return on;the investment is closest to;A.;15.4%;B.;16.4%;C.;26.5%;D.;11.1%;72.;(Ignore income taxes in this;problem.) Hartong Corporation is contemplating purchasing equipment that would;increase sales revenues by $185,000 per year and cash operating expenses by;$89,000 per year. The equipment would cost $416,000 and have a 8 year life with;no salvage value. The annual depreciation would be $52,000. The simple rate of;return on the investment is closest to;A.;23.8%;B.;12.5%;C.;10.6%;D.;23.1%;73. (Ignore;income taxes in this problem.) An expansion at Fenstermacher, Inc., would;increase sales revenues by $315,000 per year and cash operating expenses by;$186,000 per year. The initial investment would be for equipment that would;cost $405,000 and have a 5 year life with no salvage value. The annual;depreciation on the equipment would be $81,000. The simple rate of return on;the investment is closest to;A.;31.9%;B.;15.2%;C.;20.0%;D.;11.9%;74. (Ignore;income taxes in this problem.) The management of Rouleau Corporation is;investigating automating a process. Old equipment, with a current salvage value;of $10,000, would be replaced by a new machine. The new machine would be;purchased for $240,000 and would have a 6 year useful life and no salvage;value. By automating the process, the company would save $64,000 per year in;cash operating costs. The simple rate of return on the investment is closest;to;A.;10.0%;B.;26.7%;C.;10.4%;D.;16.7%;(Ignore income taxes in;this problem.) Shields Company has gathered the following data on a proposed;investment project;75.;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;76.;The simple rate of return on the investment is;closest to;A.;5%;B.;10%;C.;15%;D.;20%;77.;The net present value on this investment is;closest to;A.;$400,000;B.;$80,000;C.;$91,600;D.;$76,750;78.;The internal rate of return on the investment is;closest to;A.;11%;B.;13%;C.;15%;D.;17%;(Ignore income;taxes in this problem.) Chow Company has gathered the following data on a;proposed;investment project;79.;The payback period for the investment is closest;to;A.;8.00 years;B.;1.42 years;C.;4.75 years;D.;0.21 years;80.;The simple rate of return on the investment is;closest to;A.;8.55%;B.;10.00%;C.;21.05%;D.;33.55%;81.;The net present value on this investment is;closest to;A.;$30,000;B.;$76,024;C.;$58,800;D.;$17,550;82.;The internal rate of return on the investment is;closest to;A.;13%;B.;15%;C.;14%;D.;12%;(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 which;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%.;83.;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;84.;The internal rate of return for this investment is;closest to;A.;14%;B.;16%;C.;18%;D.;20%;85.;The net present value of this investment is;closest to;A.;$1,120;B.;$6,550;C.;$13,450;D.;$20,000;(Ignore income;taxes in this problem.) Oriental Company has gathered the following data on a;proposed;investment project;The;company uses straight-line depreciation on all equipment.;86.;The payback period for the investment would be;A.;2.41 years;B.;0.25 years;C.;10 years;D.;4 years;87.;The simple rate of return on the investment would;be;A.;10%;B.;35%;C.;15%;D.;25%;88.;The net present value of this investment would be;A.;$(14,350);B.;$107,250;C.;$77,200;D.;$200,000;(Ignore;income taxes in this problem.) Houis Inc. is considering the acquisition of a;new machine that costs $300,000 and has a useful life of 5 years with no;salvage value. The incremental net operating income and incremental net cash;flows that would be produced by the machine are;89.;If the discount rate is 11%, the net present value;of the investment is closest to;A.;$77,315;B.;$210,000;C.;$377,315;D.;$300,000;90.;The payback period of this investment is closest;to;A.;1.8 years;B.;5.0 years;C.;2.1 years;D.;2.9 years

Paper#42658 | Written in 18-Jul-2015

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