Question :
41)
When the present value of expected cash inflows from a : 1196185
41)
When the present value of expected cash inflows from a project equals the present value of expected cash outflows of a project, the discount rate is the 41)
______ A)
net present value rate. B)
universal rate. C)
required rate of return. D)
required rate. E)
inflation rate.
Use the information below to answer the following question(s).
Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:
Initial investment:
Asset $80,000
Working capital $16,000
Operations (per year for four years):
Cash receipts $80,000
Cash expenditures$44,000
Disinvestment: Salvage value of drill$
8,000
Discount rate 10 percent
42)
What is the net present value of the investment? 42)
______ A)
$1,496 B)
$(25,540) C)
$52,600 D)
$26,084 E)
$44,000
43)
In what range is the internal rate of return? 43)
______ A)
16 percent to 20 percent B)
12 percent to 16 percent C)
over 24 percent D)
8 percent to 12 percent E)
none of the above
44)
Brown Corporation recently purchased a new machine for $339,013.20. The old equipment has a remaining life of 10 years. Net cash flows will be $60,000 per year.
What is the internal rate of return? 44)
______ A)
20 percent B)
24 percent C)
16 percent D)
12 percent E)
none of the above
45)
Soda Manufacturing Company provides vending machines for soft-drink manufacturers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of 3 years, and the new equipment has a value of $52,650 with a three-year life. The expected additional cash inflows are $25,000 per year.
What is the internal rate of return? 45)
______ A)
20 percent B)
16 percent C)
8 percent D)
10 percent E)
none of the above
46)
Project ABC is under consideration. Annual cash flows equal $50,000 per year for 5 years. During the first three years the required rate of return is 2 percent. During the last two years the required rate of return is 10 percent.
What is the present value of cash inflows? 46)
______ A)
$247,730 B)
$209,350 C)
$250,000 D)
$235,650 E)
none of the above
47)
Which of the following is true, concerning NPV? 47)
______ A)
the project recovers the initial investment, discounted by the hurdle rate B)
when the NPV is positive, the cash flows from the project exceed the initial investment C)
the project recovers the initial investment exactly D)
the project recovers the initial investment and earns a profit E)
recovers the initial investment and earns a return greater than the RRR
48)
In NPV analysis, if the IRR exceeds the RRR, 48)
______ A)
the NPV is negative when project cash flows are discounted at the RRR. B)
the NPV is positive when project cash flows are discounted at the RRR. C)
the NPV will be negative (when discounted at the IRR). D)
the NPV is positive when project cash flows are discounted at the IRR. E)
the project should be rejected.
49)
Use the following information to determine which machine to purchase based on net present value.
Machine 1Machine 2Machine 3
Initial investment$225,000$235,000$210,000
Annual cash inflows$
50,000$
50,000$
50,000
Useful lives5 years4 years8 years
Cost of capital is 10 percent. 49)
______ A)
purchase machine 2 B)
purchase any of the three machines C)
purchase all three machines D)
purchase machine 1 E)
purchase machine 3
50)
In situations where the required rate of return is not constant for each year of the project, it is advantageous to use 50)
______ A)
sensitivity analysis. B)
the internal rate of return method. C)
the adjusted rate of return method. D)
the net present value method. E)
none of the above
