Question :
56.Giraldi Company has identified that the cost of a new : 1311931
56.Giraldi Company has identified that the cost of a new computer will be $48,000, but with the use of the new computer, net income will increase by $5,000 a year. If depreciation expense is $3,000 a year, the cash payback period is:
a.24.0 years.
b.16.0 years.
c.9.6 years.
d.6.0 years.
57.Richman 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 $(900). Annual cost savings were: $10,000 for year 1; $8,000 for year 2; and $6,000 for year 3. The amount of the initial investment was
Present ValuePV of an Annuity
Year of 1 at 12% of 1 at 12%
1.893.893
2.7971.690
3.7122.402
a.$20,478.
b.$18,316.
c.$20,116.
d.$18,678.
58. Use the following table,
Present Value of an Annuity of 1
Period 8% 9% 10%
1.926.917.909
21.7831.7591.736
32.5772.5312.487
A company has a minimum required rate of return of 9%. It is considering investing in a project which costs $350,000 and is expected to generate cash inflows of $140,000 at the end of each year for three years. The net present value of this project is
a.$354,340.
b.$70,000.
c.$35,436.
d.$4,340.
59. The discount rate is referred to by all of the following alternative names except the
a.accounting rate of return.
b.cutoff rate.
c.hurdle rate.
d.required rate of return.
60. The rate that a company must pay to obtain funds from creditors and stockholders is known as the
a.hurdle rate.
b.cost of capital.
c.cutoff rate.
d.all of these.
61. The higher the risk element in a project, the
a.more attractive the investment.
b.higher the net present value.
c.higher the cost of capital.
d.higher the discount rate.
62. If a company’s required rate of return is 10% and, in using the net present value method, a project’s net present value is zero, this indicates that the
a.project’s rate of return exceeds 10%.
b.project’s rate of return is less than the minimum rate required.
c.project earns a rate of return of 10%.
d.project earns a rate of return of 0%.
63. Using the profitability index method, the present value of cash inflows for Project Flower is $88,000 and the present value of cash inflows of Project Plant is $48,000. If Project Flower and Project Plant require initial investments of $90,000 and $40,000, respectively, and have the same useful life, the project that should be accepted is
a.Project Flower.
b.Project Plant.
c.Either project may be accepted.
d.Neither project should be accepted.
64. The primary capital budgeting method that uses discounted cash flow techniques is the
a.net present value method.
b.cash payback technique.
c.annual rate of return method.
d.profitability index method.
65. When the annual cash flows from an investment are unequal, the appropriate table to use is the
a.future value of 1 table.
b.future value of annuity table.
c.present value of 1 table.
d.present value of annuity table.
