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Accounting Test Bank mcq

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Question;(Ignore;income taxes in this problem.) Gull Inc. is considering the acquisition of;equipment that costs $480,000 and has a useful life of 6 years with no salvage;value. The incremental net cash flows that;would be generated by the equipment;are;91.;If the discount rate is 10%, the net present value;of the investment is closest to;A.;$654,709;B.;$234,257;C.;$415,000;D.;$174,709;92.;The payback period of this investment is closest;to;A.;3.1 years;B.;2.9 years;C.;5.0 years;D.;3.5 years;(Ignore;income taxes in this problem.) The management of Melchiori Corporation is;considering the purchase of a machine that would cost $310,000, would last for;6 years, and would have no salvage value. The machine would reduce labor and;other costs by $116,000 per year. The company requires a minimum pretax return;of 16% on all investment projects.;93.;The present value of the annual cost savings of;$116,000 is closest to;A.;$427,460;B.;$696,000;C.;$175,448;D.;$1,041,462;94.;The net present value of the;proposed project is closest to;A.;$286,179;B.;$386,000;C.;$117,460;D.;$158,431;(Ignore;income taxes in this problem.) Lichty Car Wash has some equipment that needs to;be rebuilt or replaced. The following information has been gathered concerning;this decision;Lichty;uses the total-cost approach and a discount rate of 10% in making capital;budgeting decisions. Regardless of which option is chosen, rebuild or replace;at the end of five years Mr. Lichty plans to close the car wash and retire.;95.;If the new equipment is purchased, the present;value of all cash flows that occur now is;A.;$(45,000);B.;$(39,000);C.;$(37,000);D.;$(34,000);96.;If the new equipment is purchased;the present value of the annual cash operating costs associated with this;alternative is;A.;$(26,537);B.;$(15,164);C.;$(18,463);D.;$(37,901);(Ignore income taxes in this problem.) The Finney;Company is reviewing the possibility of remodeling one of its showrooms and;buying some new equipment to improve sales operations. The remodeling would;cost $120,000 now and the useful life of the project is 10 years. Additional;working capital needed immediately for this project would be $30,000, the;working capital would be released for use elsewhere at the end of the 10-year;period. The equipment and other materials used in the project would have a;salvage value of $10,000 in 10 years. Finney's discount rate is 16%.;97.;The immediate cash outflow required for this;project would be;A.;$(120,000);B.;$(150,000);C.;$(90,000);D.;$(130,000);98. What;would the annual net cash inflows from this project have to be in order to;justify investing in remodeling?;A.;$14,495;B.;$35,842;C.;$16,147;D.;$29,158;(Ignore;income taxes in this problem.) Gillaspie, Inc., is considering the purchase of;a machine that would cost $300,000 and would last for 5 years. At the end of 5;years, the machine would have a salvage value of $51,000. The machine would;reduce labor and other costs by $86,000 per year. Additional working capital of;$10,000 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.;99.;The combined present value of the;working capital needed at the beginning of the project and the working capital;released at the end of the project is closest to;A.;-$8,420;B.;$25,170;C.;-$4,570;D.;$0;100.The net;present value of the proposed project is closest to;A.;$30,155;B.;$47,139;C.;$2,462;D.;$25,585;(Ignore;income taxes in this problem.) Rushforth Manufacturing has $90,000 to invest in;either Project A or Project B. The following data are available on these;projects;Both;projects will have a useful life of 6 years. At the end of 6 years, the working;capital investment will be released for use elsewhere. Rushforth's required;rate of return is 14%.;101.The net;present value of Project A is;A.;$27,341;B.;$94,000;C.;$71,000;D.;$117,341;102.The;net present value of Project B is;A.;$57,225;B.;$30,025;C.;$7,225;D.;$13,350;(Ignore;income taxes in this problem.) Meharg Corporation is considering the purchase;of a machine that would cost $120,000 and would last for 5 years. At the end of;5 years, the machine would have a salvage value of $25,000. By reducing labor;and other operating costs, the machine would provide annual cost savings of;$30,000. The company requires a minimum pretax return of 10% on all investment;projects.;103.The present;value of the annual cost savings of $30,000 is closest to;A.;$18,630;B.;$183,163;C.;$150,000;D.;$113,730;104.The net;present value of the proposed project is closest to;A.;$14,905;B.;-$6,270;C.;$9,255;D.;$18,730;(Ignore;income taxes in this problem.) Trybus Corporation uses a discount rate of 16%;in its capital budgeting. Partial analysis of an investment in automated;equipment with a useful life of 5 years has thus far yielded a net present;value of -$233,764. This analysis did not include any estimates of the;intangible benefits of automating this process nor did it include any estimate;of the salvage value of the equipment.;105.Ignoring any salvage value, to the nearest;whole dollar how large would the additional cash flow per year from the;intangible benefits have to be to make the investment in the automated;equipment financially attractive?;A.;$71,400;B.;$37,402;C.;$233,764;D.;$46,753;106.Ignoring any cash flows from intangible;benefits, to the nearest whole dollar how large would the salvage value of the;automated equipment have to be to make the investment in the automated;equipment financially attractive?;A.;$491,101;B.;$1,461,025;C.;$233,764;D.;$37,402;(Ignore;income taxes in this problem.) The management of Gimenez Corporation is;investigating an investment in equipment that would have a useful life of 7;years. The company uses a discount rate of 17% in its capital budgeting. Good;estimates are available for the initial investment and the annual cash;operating outflows, but not for the annual cash inflows and the salvage value;of the equipment. The net present value of the initial investment and the;annual cash outflows is -$274,265.;107.Ignoring any salvage value, 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.;$39,181;B.;$274,265;C.;$46,625;D.;$69,930;108.Ignoring the cash inflows, 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.;$274,265;B.;$46,625;C.;$1,613,324;D.;$823,619;(Ignore;income taxes in this problem.) Burchell 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 initial investment and the;annual;operating cash cost is -$594,381. Management is having difficulty estimating;the annual benefit of having the aircraft and estimating the salvage value of;the aircraft.;109.Ignoring the annual benefit, 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.;$3,962,540;B.;$89,157;C.;$594,381;D.;$1,580,801;110.Ignoring any salvage value, to the nearest;whole dollar how large would the annual benefit have to be to make the;investment in the aircraft financially attractive?;A.;$594,381;B.;$89,157;C.;$84,912;D.;$142,880;(Ignore;income taxes in this problem.) The management of Pattee Corporation is;considering three investment projects-M, N, and O. Project M would require an;investment of $25,000, Project N of $67,000, and Project O of $70,000. The present;value of the cash inflows would be $28,750 for Project M, $73,700 for Project;N, and $79,100 for Project O.;111.The;profitability index of investment project N is closest to;A.;0.10;B.;0.90;C.;0.09;D.;1.10;112.Rank the;projects according to the profitability index, from most profitable to least;profitable.;A.;O, M, N;B.;O, N, M;C.;M, O, N;D.;N, M, O;(Ignore income taxes in;this problem.) Altro Corporation is considering the following three investment;projects;113.The;profitability index of investment project S is closest to;A.;0.15;B.;1.17;C.;0.83;D.;0.17;114.Rank;the projects according to the profitability index, from most profitable to;least profitable.;A.;S, T, R;B.;R, T, S;C.;T, R, S;D.;T, S, R;(Ignore;income taxes in this problem.) The Crawford Company is pondering an investment;in a machine that costs $350,000, that will have a useful life of eight years;and that will have a salvage value of $25,000. If this machine is purchased, a;similar, old machine will be sold at a salvage value of $40,000. The;anticipated yearly revenues and expenses associated with the new machine are;All;of the revenues and expenses except depreciation are for cash. The company's;required rate of return is 12%. The annual cash flows occur uniformly;throughout the year.;115.The payback;period, to the nearest tenth of a year, of this investment is;A.;6.2 years;B.;3.2 years;C.;3.6 years;D.;4.0 years;116.The simple;rate of return, to the nearest tenth of a percent, of this investment is;A.;18.2%;B.;16.1%;C.;31.3%;D.;27.7%;(Ignore income taxes in;this problem.) Friden Company has just purchased a new piece of equipment with;the following;characteristics;117.Assume;straight-line depreciation and no salvage value. The payback period would be;A.;4.5 years;B.;10 years;C.;2.7 years;D.;8.2 years;118.The simple;rate of return would be approximately;A.;22.2%;B.;12.2%;C.;11.1%;D.;10%;119.(Ignore;income taxes in this problem.) Tranter, Inc., is considering a project that;would have a ten-year life and would require a $1,200,000 investment in;equipment. At the end of ten years, the project would terminate and the;equipment would have no salvage value. The project would provide net operating;income each year as;follows;All;of the above items, except for depreciation, represent cash flows. The;company's required rate of return is 12%.;Required;a.;Compute the project's net present;value.;b.;Compute the project's internal;rate of return to the nearest whole percent.;c.;Compute the project's payback;period.;d.;Compute the project's simple rate;of return.;120.(Ignore;income taxes in this problem.) Farah Corporation has provided the following;data concerning a;proposed investment;project;The;company uses a discount rate of 11%. The working capital would be released at;the end of the project.;Required;Compute;the net present value of the project.

 

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