Question : 71. A company buys a machine for $60,000 that has an : 1225726

71. A company buys a machine for $60,000 that has an expected life of 9 years and no salvage value. The company anticipates a yearly net income of $2,850 after taxes of 30%, with the cash flows to be received evenly throughout each year. What is the accounting rate of return? 

A. 2.85%.

B. 4.75%.

C. 6.65%.

D. 9.50%.

E. 42.75%.

72. Monterey Corporation is considering the purchase of a machine costing $36,000 with a 6-year useful life and no salvage value. Monterey uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Monterey’s average investment? 

A. $6,000.

B. $7,000.

C. $18,000.

D. $21,000.

E. $36,000.

73. Beyer Corporation is considering buying a machine for $25,000. Its estimated useful life is 5 years, with no salvage value. Beyer anticipates annual net income after taxes of $1,500 from the new machine. What is the accounting rate of return assuming that Beyer uses straight-line depreciation and that income is earned uniformly throughout each year? 

A. 6.0%.

B. 8.0%.

C. 8.5%.

D. 10.0%.

E. 12.0%.

74. The accounting rate of return is calculated as: 

A. The after-tax income divided by the total investment.

B. The after-tax income divided by the annual average investment.

C. The cash flows divided by the annual average investment.

D. The cash flows divided by the total investment.

E. The annual average investment divided by the after-tax income.

75. The following data concerns a proposed equipment purchase:

Assuming that net cash flows are received evenly throughout the year, the accounting rate of return is: 

A. 62.3%.

B. 32.0%.

C. 15.0%.

D. 7.7%.

E. 5.0%.

76. An estimate of an asset’s value to the company, calculated by discounting the future cash flows from the investment at an appropriate rate and then subtracting the initial cost of the investment, is known as: 

A. Annual net cash flows.

B. Rate of return on investment.

C. Net present value.

D. Payback period.

E. Unamortized carrying value.

77. Which of the following cash flows is not considered when using the net present value method? 

A. Future cash inflows.

B. Future cash outflows.

C. Past cash outflows.

D. Non-uniform cash inflows.

E. All of these are considered.

78. Which one of the following methods considers the time value of money in evaluating alternative capital expenditures? 

A. Accounting rate of return.

B. Net present value.

C. Payback period.

D. Cash flow method.

E. Return on average investment.

79. The hurdle rate is often set at: 

A. The rate the company could earn if the investment were placed in the bank.

B. The company’s cost of capital.

C. 10% above the IRR of current projects.

D. 10% above the ARR of current projects.

E. The rate at which the company is taxed on income.

80. Daniels Corporation is considering the purchase of new equipment costing $30,000. The projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Daniels requires a 12% return on its investments. The present value of an annuity of 1 for different periods follows:

What is the net present value of the machine? 

A. $24,018.

B. $(3,100).

C. $30,000.

D. $26,900.

E. $(29,520).