Question :
31) Which of the following results of net present value : 1186183
31) Which of the following results of net present value analyses is the least acceptable?
A) $(15,000)
B) $(1,000)
C) $12,000
D) $0
E) $20,000
Use the information below to answer the following question(s).
Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:
Initial investment:
Asset
$80,000
Working capital
$16,000
Operations (per year for four years):
Cash receipts
$80,000
Cash expenditures
$44,000
Disinvestment: Salvage value of drill
(end of year four)
$8,000
Discount rate 10 percent
Note: Other than the initial investment, cash flows are end of period.
32) What is the net present value of the investment?
A) $(25,540)
B) $39,579
C) $34,507
D) $44,000
E) $18,115
33) Project ABC is under consideration. Annual cash flows equal $50,000 per year for 5 years. During the first three years the required rate of return is 2 percent. The required rate of return for cash flows in the final two years is 10 percent.
What is the present value of cash inflows?
A) $250,000
B) $247,730
C) $235,650
D) $209,391
E) $203,642
34) Use the following information to determine which machine to purchase based on net present value.
Machine 1
Machine 2
Machine 3
Initial investment
$225,000
$235,000
$210,000
Annual cash inflows
$50,000
$50,000
$50,000
Useful lives
5 years
4 years
8 years
Cost of capital is 10 percent.
A) purchase machine 3
B) purchase machine 2
C) purchase machine 1
D) purchase any of the three machines
E) purchase all three machines
35) Investment A requires a net investment of $600,000. The required rate of return is 10 percent for the three-year annuity.
What are the annual cash inflows if the net present value equals 0?
A) $184,842
B) $241,269
C) $249,791
D) $271,316
E) $360,000
36) Upper Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $150,000. The annual cost savings if the new machine is acquired will be $40,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $20,000. Upper Darby Park Department is assuming no tax consequences. If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project?
A) $1,632
B) $12,418
C) $14,050
D) $150,000
E) $70,000
37) The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $350,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered.
A) $119,550; yes
B) $69,550; no
C) $1,019,550; yes
D) $326,750; no
E) $500,000; yes
38) Wagner Ltd. is considering investing in a new piece of equipment for its factory. It estimates that annual cash flows would be $17,000 and the equipment would last for 8 years. The company’s required rate of return is 12%. What is the most that the company should be willing to invest in this equipment? (Ignore income taxes.)
A) $84,450
B) $136,000
C) $61,280
D) $128,115
E) $94,580
39) Easton Ltd. is considering investing in a new piece of machinery for its factory. The machine costs $340,000 and is expected to last 7 years. It estimates that annual cash flows would be $82,000 and the equipment would have a salvage value of $13,000. The company’s hurdle rate is 11%. What is the NPV of this investment? (Ignore income taxes.)
A) $87,625
B) $46,400
C) $52,660
D) $234,000
E) $247,000
40) Weston Ltd. is considering investing in a new piece of equipment for its factory. It estimates that the machine will generate an additional $120,000 per year in revenues. The contribution margin on these incremental revenues is estimated at 40%. Incremental annual fixed costs are estimated to be $8,200. The equipment would have a salvage value of $14,000 at the end of 6 years. The company’s required rate of return is 13%. What is the NPV of this investment if the equipment costs $250,000? (Ignore income taxes.)
A) $2,800
B) ($51,393)
C) $204,803
D) $11,768
E) ($84,173)
