Question : 21.An investment that costs $40,000 will produce annual cash flows : 1257022

 

 

21.An investment that costs $40,000 will produce annual cash flows of $12,000 for a period of 4 years. Given a desired rate of return of 10%, the investment will generate a (Do not round your PV factors and intermediate calculations. Round your answer to nearest whole dollar):   

A. positive net present value of $38,038.

 

B. positive net present value of $1,962.

 

C. negative net present value of $38,038.

 

D. negative net present value of $1,962.

 

 

22.An investment that costs $20,000 will produce annual cash flows of $5,000 for a period of 6 years. Further, the investment has an expected salvage value of $3,000. Given a desired rate of return of 12%, the investment will generate a (Do not round your PV factors and intermediate calculations. Round your answer to the nearest whole dollar.):   

A. positive net present value of $2,077.

 

B. negative net present value of $2,077.

 

C. positive net present value of $22,077.

 

D. positive net present value of $557.

 

 

23.The rate of return that equates the present value of cash inflows and outflows is the:   

A. minimum rate of return.

 

B. internal rate of return.

 

C. desired rate of return.

 

D. hurdle rate.

 

 

24.An investment that cost $30,000 provided annual cash inflows of $9,000 per year for five years. The desired rate of return is 10%. The internal rate of return from the investment was (Do not round your PV factors and intermediate calculations):   

A. less than the desired rate of return.

 

B. equal to the desired rate of return.

 

C. greater than the desired rate of return.

 

D. the answer cannot be determined from the information provided.

 

 

25.Select the incorrect statement concerning the internal rate of return (IRR) method of evaluating capital projects.   

A. The higher the IRR the better.

 

B. The internal rate of return is that rate that makes the present value of the initial outlay equal to zero.

 

C. If a project has a positive net present value then its IRR will exceed the hurdle rate.

 

D. A project whose IRR is less than the cost of capital should be rejected.

 

 

26.Which of the following is the approximate internal rate of return for an investment that costs $33,550 and provides a $5,000 annuity for 10 years?   

A. 5%

 

B. 6%

 

C. 8%

 

D. 10%

 

 

27.Theresa is considering starting a small business. She plans to purchase equipment costing $145,000. Rent on the building used by the business will be $26,000 per year while other operating costs will total $30,000 per year. A market research specialist estimates that Theresa’s annual sales from the business will amount to $80,000. Theresa plans to operate the business for 6 years. Disregarding the effects of taxes, what will be the amount of annual net cash flow generated by the business?   

A. $24,000

 

B. $56,000

 

C. $80,000

 

D. None of these answers is correct.

 

 

28.Cash outflows can be categorized into all of the following groups except:   

A. opportunity costs associated with selecting a specific capital project.

 

B. outflows associated with the initial investment.

 

C. working capital commitments.

 

D. increases in operating expenses.

 

 

29.Which of the following would be considered a cash inflow in determining the value of a capital investment?   

A. Incremental revenues from increased productivity

 

B. Cost savings from a reduction in labor hours

 

C. An increase in working capital commitments

 

D. Both incremental revenues from increased productivity and cost savings from a reduction in labor hours are correct.

 

 

30.A capital investment project may provide cash inflows from:   

A. incremental revenues.

 

B. cost savings.

 

C. the salvage value of the investment.

 

D. all of these answers are correct.