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
