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Question;32. (Ignore income taxes in this problem.) Stratford Company purchased;a machine with an estimated useful life of seven years. The machine will;generate cash inflows of \$90,000 each year over the next seven years. If the;machine has no salvage value at the end of seven years, and assuming the;company's discount rate is 10%, what is the purchase price of the machine if;the net present value of the investment is \$170,000?;A. \$221,950;B. \$170,000 C. \$268,120 D. \$438,120;33. (Ignore income taxes in this problem.) Arthur operates a part-time;auto repair service. He estimates that a new diagnostic computer system will;result in increased cash inflows of \$2,100 in Year 1, \$3,200 in Year 2, and;\$4,000 in Year 3. If Arthur's discount rate is 10%, then the most he would be;willing to pay for the new computer system would be;A. \$6,652;B. \$6,984 C. \$7,747 D. \$7,556;14-15;A. \$12,871;B. \$63,352;C.;-\$15,648;D.;\$35,692;35. (Ignore income taxes in this problem) The management of Rousseau;Corporation is considering the purchase of a machine that would cost \$340,000;would last for 8 years, and would have no salvage value. The machine would;reduce labor and other costs by \$67,000 per year. The company requires a;minimum pretax return of 15% on all investment projects. The net present value;of the proposed project is closest to;A. \$196,000;B. -\$120,437 C. -\$39,371 D. \$64,073;36. (Ignore income taxes in this problem.) Dokes, Inc. is considering;the purchase of a machine that would cost \$440,000 and would last for 9 years.;At the end of 9 years, the machine would have a salvage value of \$62,000. The;machine would reduce labor and other costs by \$81,000 per year. Additional working;capital of \$8,000 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. -\$24,308 B. -\$8,998 C. -\$27,030 D. -\$3,662;14-16;The;internal rate of return is (do not interpolate);A.;14%;B.;12%;C. 10%;D.;5%;38. (Ignore income taxes in this problem) The management of Boie;Corporation is considering the purchase of a machine that would cost \$330,980;and would have a useful life of 6 years. The machine would have no salvage;value. The machine would reduce labor and other operating costs by \$76,000 per;year. The internal rate of return on the investment in the new machine is;closest to;A. 11% B.;10% C. 12% D. 7%;39. (Ignore income taxes in this problem.) Pare Long-Haul, Inc. is;considering the purchase of a tractor-trailer that would cost \$104,520, would have;a useful life of 6 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 \$24,000 per year. The internal rate of return on the investment;in the tractor-trailer is closest to;A. 10% B. 8% C. 13% D. 11%;14-17;C. 11%;D.;9%;41. (Ignore income taxes in this problem) Digrande Corporation is;investigating buying a small used aircraft for the use of its executives. The;aircraft would have a useful life of 6 years. The company uses a discount rate;of 12% in its capital budgeting. The net present value of the investment;excluding the salvage value of the aircraft, is -\$250,113. 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. \$30,014 B. \$2,084,275 C. \$250,113 D. \$493,320;42. (Ignore income taxes in this problem) The management of Nagata;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 13% in its capital;budgeting. The net present value of the investment, excluding the intangible;benefits, is -\$326,237. 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. \$326,237 B. \$54,373 C. \$81,600 D. \$42,411;14-18;A. \$62,516;B. \$82,620;C.;\$40,860;D.;\$367,742;44. (Ignore income taxes in this problem.) Picado, Inc. is;investigating an investment in equipment that would have a useful life of 8;years. The company uses a discount rate of 9% in its capital budgeting. The net;present value of the investment, excluding the salvage value, is - \$389,000. 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. \$774,900 B. \$35,010 C. \$389,000 D. \$4,322,222;45.;Fonics Corporation is;considering the following three competing investment proposals;Using the project profitability index, how would the above;investments be ranked (highest to lowest)?;A.;Aye, Bee, Cee;B. Aye, Cee, Bee;C.;Cee, Bee, Aye;D.;Bee, Cee, Aye;14-19;47. Information on four investment proposals is given below;Rank the proposals in terms of preference according to the project;profitability index;A.;3, 4, 1, 2;B. 1, 2, 3, 4;C. 1, 3, 2, 4;D.;2, 1, 4, 3;48. (Ignore income taxes in this problem.) The management of;Eversman Corporation is considering the following three investment projects;Rank the projects according to the profitability index, from most;profitable to least profitable.;A.;V,U,W;B. U,W,V;C.;W,V,U;D.;V,W,U;14-20;C. 0.87;D.;0.12;50. (Ignore income taxes in this problem.) Tanna Corporation is;considering three investment projects: O, P, and Q. Project O would require an;investment of \$38,000, Project P of \$49,000, and Project Q of \$91,000. No other;cash outflows would be involved. The present value of the cash inflows would be;\$42,180 for Project O, \$53,900 for Project P, and \$91,910 for Project Q. Rank;the projects according to the profitability index, from most profitable to;least profitable.;A. P,O,Q B.;O,Q,P C. Q,O,P D. O,P,Q;51. (Ignore income taxes in this problem.) The management of Crail;Corporation is considering a project that would require an initial investment;of \$51,000. No other cash outflows would be required. The present value of the;cash inflows would be \$60,180. The profitability index of the project is;closest to;A. 0.18 B.;0.82 C. 1.18 D. 0.15;14-21;The company's required rate of return is 12%. What is the payback;period for this project?;A.;3 years;B. 2 years;C.;4.28 years;D.;9 years;53. (Ignore income taxes in;this problem.) A company with \$800,000 in operating assets is considering the;purchase of a machine that costs \$75,000 and which is expected to reduce;operating costs by \$20,000 each year. The payback period for this machine in years;is closest to;A.;0.27 years;B. 10.7 years;C.;3.75 years;D.;40 years;14-22;Assuming that the cash inflows occur evenly over the year, the;payback period for the investment is;A.;0.75 years;B. 1.67 years;C.;4.91 years;D.;2.50 years;55. (Ignore income taxes in;this problem.) Burwinkel Corporation is considering a project that would;require an investment of \$252,000 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 \$28,000. The payback period of the project is closest to;A.;1.1 years;B. 1.3 years;C.;1.4 years;D.;1.5 years;14-23;B. 1.5 years;C. 1.9 years;D.;1.7 years;57. (Ignore income taxes in this problem.) Denny Corporation is;considering replacing a technologically obsolete machine with a new;state-of-the-art numerically controlled machine. The new machine would cost;\$450,000 and would have a ten-year useful life. Unfortunately, the new machine;would have no salvage value. The new machine would cost \$20,000 per year to;operate and maintain, but would save \$100,000 per year in labor and other;costs. The old machine can be sold now for scrap for \$50,000. The simple rate;of return on the new machine is closest to;A. 8.75% B. 20.00% C. 7.78% D. 22.22%;58. (Ignore income taxes in this problem.) Tighe Corporation is;contemplating purchasing equipment that would increase sales revenues by;\$420,000 per year and cash operating expenses by \$231,000 per year. The;equipment would cost \$747,000 and have a 9 year life with no salvage value. The;annual depreciation would be \$83,000. The simple rate of return on the investment;is closest to;A. 25.3% B.;14.2% C. 11.1% D. 25.2%;14-24;B. 20.0%;C. 26.5%;D.;35.8%;60. (Ignore income taxes in this problem.) An expansion at Huebschman;Inc., would increase sales revenues by \$76,000 per year and cash operating;expenses by \$33,000 per year. The initial investment would be for equipment;that would cost \$196,000 and have a 7 year life with no salvage value. The;annual depreciation on the equipment would be \$28,000. The simple rate of;return on the investment is closest to;A. 7.7% B.;14.3% C. 21.9% D. 19.7%

Paper#50039 | Written in 18-Jul-2015

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