Question : 66. The payback period of this investment is: A. Four years.B. Five years.C. Six years.D. Over : 1229661

66. The payback period of this investment is: 
A. Four years.
B. Five years.
C. Six years.
D. Over six years.

67. The expected rate of return on average investment in this equipment is: 
A. 15%.
B. 20%.
C. 7.5%.
D. Some other percentage.

Neville Company is considering an investment of $380,000 in heavy equipment which will enable the company to be more competitive in the construction industry. The useful service life of the equipment is estimated to be 10 years, with $30,000 salvage value. Straight-line depreciation is used. The company estimates that net income will increase by $41,000 per year as a result of the company’s ability to handle a wider range of projects with the new equipment.

68. The payback period for this investment is approximately: 
A. 4.7 years.
B. 9.4 years.
C. 8.75 years.
D. 5 years.

69. The expected rate of return on average investment will be approximately: 
A. 20%.
B. 43%.
C. 23%.
D. 37 1/2%.

70. The president of Nash Company is considering a proposal by the factory manager for the purchase of a machine for $72,500. The useful life would be eight years, with no residual scrap value. The use of the machine will produce a positive annual cash flow of $14,000 a year for eight years. An annuity table shows that the present value of $1 received annually for eight years and discounted at 10% is 5.335. The net present value of the proposal, discounted at 10%, is: 
A. $2,190 positive.
B. Zero.
C. $3, 868 negative.
D. $3.868 positive.

71. The management of Trylon Farms is considering the purchase of equipment costing $320,000. The equipment has a useful life of eight years, with $20,000 residual value. The use of this equipment will produce positive annual cash flow of $60,000 for eight years, as well as $20,000 from sale of the equipment at the end of the eighth year. Compute the net present value of this investment, discounted at an annual rate of 10%. (Present value of $1 due in eight years, discounted at 10%, is 0.467; present value of $1 received annually for eight years, discounted at 10%, is 5.335.) 
A. $9,340.
B. $320,100.
C. $9,440.
D. $329,440.

72. The management of Salem Corporation is considering the purchase of equipment costing $109,000 which has an estimated life of 3 years and no salvage value. The net after tax cash flow from the project for each of the three years is expected to be $45,000. The company’s cost of capital is 10%. Compute the net present value of the equipment. (Present value of $1 due in three years, discounted at 10%, is 0.751; present value of $1 received annually for three years, discounted at 10%, is 2.487.) 
A. $3,616.
B. $2,548.
C. $2,915.
D. $3,213.

Newman Labs is considering buying equipment which would enable the company to obtain a five-year research contract. The specialized equipment costs $650,000 and will have no salvage value when the five-year contract period is over. The estimated annual operating results of the project are as follows:

All revenue from the contract and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.

73. The payback period for the investment in equipment is: 
A. 5 years.
B. 1 years.
C. 2 years.
D. 2.8 years.

74. The return on average investment for this investment is approximately: 
A. 10%.
B. 20%.
C. 31%.
D. 50%.

75. Compute the net present value of this investment, using a discount rate of 12%. (An annuity table shows that the present value of $1 received annually for five years, discounted at 12%, is 3.605.) 
A. $468,650.
B. $179,150.
C. $289,500.
D. $829,150.

Helicopter Gear is planning to expand its product line, which requires investment of $475,200 in special-purpose machinery. The machinery has a useful life of six years and no salvage value. The estimated annual results of offering the new products are as follows:

All revenue from the new products and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.