Question : Fill in the Blank Questions Port Pharmacy considering the purchase of : 1229655

Fill in the Blank Questions 

Port Pharmacy is considering the purchase of a copying machine, which it will make available to customers at a per copy charge. The copying machine has an initial cost of $8,500, an estimated useful life of five years, and an estimated salvage value of $2,500. The estimated annual revenue and expenses relating to operation of the machine are as follows:  All revenue will be received in cash; expenses other than depreciation will be paid in cash. Depreciation will be computed by the straight line method.Compute for this proposal the expected:

113. Annual increase in Port’s net income: $_____________  

114. Annual net cash flow: $_____________  

115. Payback period: ____________ years  

116. Return on average investment: _____________%  

117. Net present value (round to the nearest dollar) of the proposed investment, discounted at an annual rate of 15% (Tables show that the present value of $1 to be received in five periods, discounted at 15%, is 0.497 and that the present value of a five year annuity of $1, discounted at 15%, is 3.352): $_____________  

Beacon Manufacturing, Inc. is planning to buy a new cutting machine. The machine costs $125,000, has an estimated life of ten years and no salvage value. The machine is expected to have the following impact:  All revenue and expenses other than depreciation will be received or paid in cash. Compute the following for this proposal:

118. What is the annual net cash flow expected from the cutting machine investment? ____________  

119. What is the expected payback period of the cutting machine investment? $_____________  

120. What is the expected return on average investment associated with the cutting machine? $_____________  

121. What is the net present value of the cutting machine discounted at an annual rate of 10%, if the present value of a ten-year $1 annuity discounted at 10% is 6.145? $_____________  

122. What is the net present value of the cutting machine discounted at an annual rate of 20%, if the present value of a ten-year $1 annuity discounted at 20% is 4.192? $_____________  

Multiple Choice Questions 

123. Which of the following capital budgeting measures requires the discounting of an investment’s future cash flows? A. Payback period.B. Net present value.C. Return on average investment.D. Accounting rate of return.

124. Which of the following is of least importance in determining whether to replace an old piece of equipment? A. The incremental costs and revenue associated with the new piece of equipment.B. The estimated cost of the new piece of equipment.C. The historical cost of the old piece of equipment.D. The estimated salvage value of the new piece of equipment.

125. If the net present value of an investment proposal is positive, what conclusions can be drawn? (Identify all correct answers.) A. The discount rate used is less than the investment’s estimated return.B. The investment’s estimated return exceeds the minimum return required by the investor.C. The discount rate used equals the minimum return required by the investor.D. The investment generates cash flows with a present value in excess of its cost.

126. Western Mfg. Co. is considering two capital budgeting proposals, each with a 10-year life, and each requiring an initial cash outlay of $50,000. Proposal A shows a higher return on average investment than proposal B, but Proposal B shows the higher net present value. The most probable explanation is that: A. Expected cash inflows tend to occur earlier in Proposal B.B. Total expected cash inflows are greater in Proposal B.C. The payback period is shorter in Proposal A.D. The discounted future cash flows approach makes no provision for recovery of the original $50,000 investment.

127. Copy Center is considering replacing its old copying machine, which has a $3,200 book value, with a new one. Discounted cash flow analysis of the proposal to acquire the new machine shows an estimated net present value of $2,800. If the new machine is acquired, the old machine will have no resale value and will be given away. The loss on disposal of the old machine: A. Is an opportunity cost of purchasing the new machine.B. Exceeds the net present value of the new machine, indicating that the new machine should not be acquired.C. Has already been deducted in arriving at the $2,800 net present value of the new machine.D. Is a sunk cost and is not relevant to the decision at hand, except as it affects the timing of income tax payments.