Question : 65.Discount Dollar Store considering the purchase of a new machine : 1302828

 

 

65.Discount Dollar Store is considering the purchase of a new machine costing $220,000. This machine is estimated to generate an additional $88,000 per year in revenues. The machine will be depreciated using the straight-line method over its 4-year life. There is no expected salvage value at the end of its life. Expected annual net cash flows are $67,240 and expected annual net income from the new machine total $12,240. The required rate of return is 8% and the income tax rate is 28%. How much is the net present value of this project?

A.$2,706

B.($179,460)

C.$71,465

D.$153,390

 

66.Live Nutrition is considering the purchase of a new computer system for diagnosing health problems. The company estimates that the system will result in increased operating cash flows of $5,800 in year 1, $6,500 in year 2, and $11,400 in year 3. The company’s required rate of return is 8%. What is the maximum cost the company will be willing to pay for the computer system?

A.$14,947

B.$23,700

C.$19,992

D.$43,692

 

67.The following data pertain to an investment proposal:

 

Required investment$75,000

Annual cost savings$18,000

Projected life of investment8 years

Projected salvage value$4,000

Required rate of return16%

 

Ignoring income taxes, how much is the net present value of the proposed investment?

A.$13,527

B.$3,185

C.$14,747

D.$4,405

 

68.Objective Products’ required rate of return on capital budgeting projects is 9%. The company is considering an investment that would yield net annual operating cash flows of $30,000 for 3 years. What is the maximum amount that the company will be willing to invest in this project?

A.$75,939

B.$69,498

C.$90,000

D.$98,100

 

69.Which of the following is the rate of return that equates the present value of future cash flows to the investment outlay?

A.Hurdle rate

B.Internal rate of return

C.Payback return

D.Accounting rate of return

 

70.Which statement(s) is/are true concerning the internal rate of return?

I.It takes into account the time value of money.

II.It is the rate of return that equates the present value of future cash flows to the investment outlay.

AI only

B.II only

C.Neither I nor II

D.Both I and II

 

71.Under which one of the following situations should a project be accepted?

A.The internal rate of return is less than the cost of capital.

B.The hurdle rate is greater than the required rate of return.

C.The return on the project is equal to the required rate of return.

D.The internal rate of return is less than the cost of capital.

72.The cash inflows expected during a project’s life are equal in amount. In determining the internal rate of return, how is the present value factor calculated?

A.By dividing the initial outlay by the annuity amount

B.By multiplying the annuity amount by the number of years it occurs

C.By looking in the present value of an annuity table for the number of years and the respective discount rate

D.By dividing the present value of the annuity by the initial outlay

 

73.Mexicali Foods determined the net operating cash inflows during a project’s life would not be equal in amount. How can the internal rate of return be found?

A.By averaging the cash flows and treating them as if they are equal

B.By determining the accounting rate of return

C.By determining the cost of equity

D.By trial and error using present value tables, a spreadsheet program, or a financial calculator

 

74.The projected rate of return on a particular project is equal to the hurdle rate. Which statement is true?

A.The payback period will be longer than the period over which the return is expected to occur.

B.The project should be rejected.

C.A lower discount rate should be used.

D.The project should be accepted.

 

 

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