Question :
31. Woody Manufacturing Inc. considering the purchase of a new machine. : 1295629
31. Woody Manufacturing Inc. is considering the purchase of a new machine. They have narrowed their choices down to two machines, Machine #1 and Machine #2, each having a cost of $40,000. The following information is available regarding the expected cash inflows from each machine:
Year
Machine #1
Machine #2
1
$20,000
$60,000
2
20,000
0
3
20,000
0
When using net present value analysis, Woody uses the same cost of capital for both machines and both machines have a positive net present value.Based on the above information, which of the following statements is true? A. Machine #1 will have a higher net present value than Machine #2.B. Machine #1 will have a lower net present value than Machine #2.C. Machines #1 and #2 will have the same net present values.D. Machines #1 and #2 will have the same internal rates of return.
32. Grant Inc. would like to replace an outdated piece of equipment with a newer model. Grant has determined that the new equipment needs to generate annual cash inflows of $10,000 for six years and have a salvage value at the end of year six of $4,000. Grant uses a cost of capital equal to 15 percent when making capital investment decisions. Given this information, which of the following statements is true regarding the cost of the new equipment if, using net present value analysis, Grant decides to purchase the new equipment because it has a positive net present value? A. The cost of the equipment was $64,000 or less.B. The cost of the equipment was $73,600 or less.C. The cost of the equipment was $39,574 or less.D. The cost of the equipment was $52,983 or less.
33. If the net present value (NPV) of an investment is zero, then the internal rate of return (IRR) is: A. less than the discount rate.B. more than the discount rate.C. equal to the discount rate.D. negative.
34. If a project has an internal rate of return of 12% and a negative net present value, which of the following statements is true regarding the discount rate used for the net present value computation? A. The discount rate must have been greater than 12%.B. The discount rate must have been less than 12%.C. The discount rate must have been equal to 12%.D. The discount rate must have been 0%.
35. If a project has an internal rate of return of 14% and a positive net present value, which of the following statements is true regarding the discount rate used for the net present value computation? A. The discount rate must have been greater than 14%.B. The discount rate must have been less than 14%.C. The discount rate must have been equal to 14%.D. The discount rate must have been 0%.
36. The internal rate of return (IRR) of a project can be calculated using all of the following except: A. a financial calculator.B. present value tables.C. a spreadsheet application, such as Excel.D. the payback method.
37. Finch Corporation purchased an asset costing $10,000. Annual operating cash inflows generated from the asset are expected to be $1,610 each year for eight years. No salvage value is expected at the end of the asset’s life. Using time value of money tables, which of the following rates is closest to the internal rate of return on the project? A. 8%B. 6%C. 10%D. 16%
38. Cardinal Inc. purchased an asset costing $25,000. Annual operating cash inflows generated from the asset are expected to be $6,595 each year for five years. No salvage value is expected at the end of the asset’s life. Using time value of money tables, which of the following rates is closest to the internal rate of return on the project? A. 4%B. 26%C. 10%D. 32%
39. Bluebird Inc. requires all capital investments to generate an internal rate of return of 14%. Bluebird is currently considering an investment that is expected to generate annual cash inflows of $12,000 for 5 years. The cost of the investment should not exceed: A. $60,000B. $41,197C. $31,164D. $ 6,233
40. Oakwood Inc. requires all capital investments to generate an internal rate of return of 16%. Oakwood is currently considering an investment that is expected to generate annual cash inflows of $15,000 for 7 years. The cost of the investment should not exceed: A. $ 16,800B. $ 37,149C. $ 60,579D. $105,000
