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##### 34. A company projects an increase in net income o...

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34. A company projects an increase in net income of \$225,000 each year for the next five years if it invests \$900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of \$300,000. What is the annual rate of return on this investment? A) 25.0% B) 37.5% C) 50.0% D) 57.5% 35. Benaflek Co. purchased some equipment 3 years ago. The company's required rate of return is 12%, and the net present value of the project was \$(450). Annual cost savings were: \$5,000 for year 1; \$4,000 for year 2; and \$3,000 for year 3. The amount of the initial investment was Present Value PV of an Annuity Year of 1 at 12% of 1 at 12% 1 .893 .893 2 .797 1.690 3 .712 2.402 A) \$10,239. B) \$9,158. C) \$10,058. D) \$9,339. 36. Fehr Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Blue Project Gray Initial investment \$400,000 \$600,000 Annual net income 20,000 42,000 Net annual cash inflow 100,000 142,000 Estimated useful life 5 years 6 years Salvage value 0 0 The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 Periods 9% 10% 11% 12% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 The net present value for Project Gray is A) \$618,410. B) \$182,912. C) \$100,000. D) \$18,410. 37. Fehr Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Blue Project Gray Initial investment \$400,000 \$600,000 Annual net income 20,000 42,000 Net annual cash inflow 100,000 142,000 Estimated useful life 5 years 6 years Salvage value 0 0 The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 Periods 9% 10% 11% 12% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 The internal rate of return for Project Gray is approximately A) 10%. B) 11%. C) 12%. D) 9%.

Paper#9378 | Written in 18-Jul-2015

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