Question :
121. The management of River Corporation considering the purchase of a : 1239648
121. The management of River Corporation is considering the purchase of a new machine costing $380,000. The company’s desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation:
Year
Income fromOperations
Net CashFlow
1
$20,000
$95,000
2
20,000
95,000
3
20,000
95,000
4
20,000
95,000
5
20,000
95,000
The net present value for this investment is: A. Positive $20,140B. Negative $20,140C. Positive $19,875D. Negative $19,875
122. Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, what would be the present value of $15,000 (rounded to the nearest dollar) to be received at the end of each of the next two years, assuming an earnings rate of 6%? A. $27,495B. $26,040C. $30,000D. $25,350
123. Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, what would be the present value of $8,000 (rounded to the nearest dollar) to be received one year from today, assuming an earnings rate of 12%? A. $7,544B. $7,120C. $7,272D. $7,144
124. Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, what is the present value of $6,000 (rounded to the nearest dollar) to be received at the end of each of the next 4 years, assuming an earnings rate of 10%? A. $20,790B. $19,020C. $14,412D. $25,272
125. Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%)? A. $20,352B. $3,969C. $22,190D. $21,259
126. The production department is proposing the purchase of an automatic insertion machine. They have identified 3 machines and have asked the accountant to analyze them to determine the best average rate of return.
Machine A
Machine B
Machine C
Estimated Average Income
$40,000
$50,000
$75,000
Average Investment
$300,000
$250,000
$500,000
A. Machine BB. Machine CC. Machine B or CD. Machine A
127. The production department is proposing the purchase of an automatic insertion machine. They have identified 3 machines and have asked the accountant to analyze them to determine the best cash payback.
Machine A
Machine B
Machine C
Annual Cash Flow
$40,000
$50,000
$75,000
Average Investment
$300,000
$250,000
$500,000
A. Machine AB. Machine CC. Machine BD. All are equal.
128. Which of the following is true of the cash payback period? A. The longer the payback, the longer the estimated life of the asset.B. The longer the payback, the sooner the cash spent on the investment is recovered.C. The shorter the payback, the less likely the possibility of obsolescence.D. All of the above are correct.
129. The production department is proposing the purchase of an automatic insertion machine. They have identified 3 machines and have asked the accountant to analyze them to determine which of the proposals (if any) meet or exceed the company’s policy of a minimum desired rate of return of 10% using the net present value method. Each of the assets has a estimated useful life of 10 years.
Machine A
Machine B
Machine C
Present Value of Future Cash Flows computed using 10% rate of return
$305,000
$295,000
$300,000
Amount of initial investment
$300,000
$300,000
$300,000
A. A & CB. B & CC. BD. A only
130. The production department is proposing the purchase of an automatic insertion machine. They have identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return?
Machine A
Machine B
Machine C
Annual net cash flows
$50,000
$40,000
$75,000
Average investment
$250,000
$300,000
$500,000
A. Machine BB. Machine CC. Machine A and BD. Machine A