Question : 61. A company considering purchasing a machine for $21,000. The : 1256788

 

 

61. A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the approximate accounting rate of return?

A.  19%B.  33%C.  17%D.  10%E.  25%

 

 

62. A company is considering the purchase of a new piece of equipment for $90,000. Predicted annual cash inflows from this investment are $36,000 (year 1); $30,000 (year 2); $18,000 (year 3); $12,000 (year 4); and $6,000 (year 5). The payback period is:A.  4.50 yearsB.  4.25 yearsC.  3.50 years D.  3.00 yearsE.  2.50 years

 

 

63. A disadvantage of using the payback period to compare investment alternatives is that:A.  It ignores cash flows beyond the payback period.B.  It includes the time value of money.C.  It cannot be used when cash flows are not uniform.D.  It cannot be used if a company records depreciation.E.  It cannot be used to compare investments with different initial investments.

 

 

64. A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year. The company’s tax rate is 40%. What is the payback period for the new machine?A.  3.0 yearsB.  6.0 yearsC.  7.5 yearsD.  12.0 yearsE.  20.0 years

 

 

65. A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year. The company’s tax rate is 40%. What is the approximate accounting rate of return for the machine?A.  13%.B.  17%C.   8%D.  27%E.  10%

 

 

66. A company is considering the purchase of a new machine for $72,000. Management predicts that the machine can produce sales of $21,000 each year for the next eight years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $5,000 per year plus depreciation of $9,000 per year. The company’s tax rate is 40%. What is the payback period for the new machine?A.  5.45 yearsB.  17.14 yearsC.  10.29 yearsD.  4.50 yearsE.  6.00 years

 

 

67. A company is considering the purchase of a new machine for $128,000. Management predicts that the machine can produce sales of $32,000 each year for the next eight years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $7,500 per year plus depreciation of $10,800 per year. The company’s tax rate is 38%. What is the payback period for the new machine?A.  4.00 yearsB.  6.63 yearsC.  9.34 yearsD.  15.06 yearsE.  5.22 years

 

Reference: 24_01

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated using the straight-line method with no salvage value. The company expects to sell the machine’s output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset’s life appears below. 

Sales

 

$90,000

 

Costs:

 

 

 

Manufacturing

$52,000

 

 

Depreciation on machine

4,000

 

 

Selling and administrative expenses

30,000

(86,000

)

Income before taxes

 

$ 4,000

 

Income tax (50%)

 

( 2,000

)

Net income

 

$ 2,000

 

 

 

 

 

 

 

 

 

 

68. What is the payback period for this machine?A.  24 yearsB.  12 yearsC.  6 yearsD.  4 yearsE.  1 year

 

 

69. What is the accounting rate of return for this machine?A.  33.3%B.  16.7%C.  50.0%D.  8.3%E.  4%

 

Reference: 24_02

A company is planning to purchase a machine that will cost $35,000, have a seven-year life, and be depreciated using the straight-line method with no salvage value. The company expects to sell the machine’s output of 4,000 units evenly throughout each year. A projected income statement for each year of the asset’s life appears below: 

Sales

 

$119,000

 

Costs:

 

 

 

Manufacturing

$68,000

 

 

Depreciation on machine

5,000

 

 

Selling and administrative expenses

40,000

(113,000

)

Income before taxes

 

$ 6,000

 

Income tax (50%)

 

( 3,000

)

Net income

 

$ 3,000

 

 

 

 

 

 

 

70. What is the payback period for this machine?A.  17.50 yearsB.  11.67 yearsC.  5.00 yearsD.  4.375 yearsE.  1 year