Question :
SHORT ANSWER.
Write the word or phrase that best completes each : 1196188
SHORT ANSWER.
Write the word or phrase that best completes each statement or answers the question. 71)
Match each one of the examples below with one of the stages of the capital budgeting decision model.
Stages:
1.Identification
2.Search
3.Information-acquisition
4.Selection
5.Financing
6.Implementation and control
______a.Issuing corporate stock for the funds to purchase new equipment
______b.Learning how to effectively operate Machine #8 only takes 15 minutes
______c.The need to reduce the costs to process the vegetables used in producing goulash
______d.Monitoring the costs to operate a new machine
______e.Percentage of defective merchandise considered too high
______f.Will introducing the new product substantially upgrade our image as a producer of quality products?
______g.Research indicates there are five machines on the market capable of producing our product at a competitive cost.
______h.Use of the internal rate of return for each alternative
71)
_____________
72)
Cast Iron Stove Company wants to buy a molding machine that can be integrated into its computerized
manufacturing process. It has received three bids for the machine and related manufacturer’s
specifications. The bids range from $3,500,000 to $3,550,000. The estimated annual savings of the
machines range from $260,000 to $270,000. The payback periods are almost identical and the net present
values are all within $8,000 of each other. The president just doesn’t know what to do about which
vendor to choose since all of the selection criteria are so close together.
Required:
What suggestions do you have for the president?
72)
_____________
73)
Match each one of the examples below with one of the stages of the capital budgeting decision model.
Stages: 1.Identification4.Selection
2.Search5.Financing
3.Information-acquisition 6.Implementation and control
a.issuing corporate bonds for new equipment.
b.machine 5 has a very good safety record.
c.need to improve processing of vegetables in a soup company.
d.operating a new assembly line in a soup company.
e.quality control of output needs improvement.
f.the opportunity costs of investing in a new line of soup.
g.there are three vegetable processing machines on the market.
h.utilization of discounted cash flow for each alternative. 73)
_____________
74)
The Zero Machine Company is evaluating a capital expenditure proposal that requires an initial
investment of $20,960 and has predicted cash inflows of $5,000 per year for 10 years. It will have no
salvage value.
Required:
a.Using a required rate of return of 16%, determine the net present value of the investment proposal.
b.Determine the proposal’s internal rate of return.
74)
_____________
75)
Toys and Junk Company is evaluating a capital expenditure proposal that requires an initial investment of $16,004 and has predicted cash inflows of $4,000 per year for 15 years. It will have no salvage value.
Required:
a.Using a required rate of return rate of 14 percent, determine the net present value of the investment proposal.
b.Determine the proposal’s internal rate of return. 75)
_____________
76)
Network Service Centre is considering purchasing a new computer network for $72,000. It will require additional working capital of $8,000. Its anticipated seven-year life will generate additional client revenue of $31,000 annually with operating costs, excluding amortization, of $14,000. At the end of seven years it will have a salvage value of $9,760 and return $8,000 in working capital.
Required:
a.If the company has a required rate of return of 12 percent, what is the net present value of the proposed investment?
b.What is the internal rate of return? 76)
_____________
77)
Next Service Center is considering purchasing a new computer network for $82,000. It will require
additional working capital of $13,000. Its anticipated eight-year life will generate additional client
revenue of $33,000 annually with operating costs, excluding amortization, of $15,000. At the end of eight
years, it will have a salvage value of $9,500 and return $5,000 in working capital. Taxes are not
considered.
Required:
a.If the company has a required rate of return of 14%, what is the net present value of the proposed investment?
b.What is the internal rate of return?
77)
_____________
78)
EIF Manufacturing company needs to overhaul its drill press or buy a new one. The facts have been gathered, and are as follows:
Current New
machine
Purchase price, new$80,000$100,000
Current book value30,000
Overhaul needed now 40,000
Annual cash operating costs 70,00040,000
Current salvage value20,000
Salvage value in five years5,00020,000
Required:
Which alternative is the most desirable with a current required rate of return of 20 percent? Show computations. 78)
_____________
79)
ABC Boat Company is interested in replacing a moulding machine with a new improved model. The old machine has a salvage value of $20,000 now and a predicted salvage value of $4,000 in six years, if rebuilt. If the old machine is kept, it must be rebuilt in one year at a predicted cost of $40,000. The new machine costs $160,000 and has a predicted salvage value of $24,000 at the end of six years. The new machine will generate cash savings of $40,000 for each of the first three years and $20,000 for each year of its remaining six-year life.
Required:
What is the net present value of purchasing the new machine if the company has a required rate of return of 14 percent?
79)
_____________
80)
Supply the missing data for each of the following proposals.
Proposal AProposal BProposal C
Initial investment(a)$62,900$226,000
Annual net cash inflow$60,000(c)(e)
Life in years10610
Salvage value$0$10,000$0
Payback period in year(b)(d)5.65
Internal rate of return12%24%(f)
80)
_____________
