Question : SHORT ANSWER. Write the word or phrase that best completes each : 1196188

 

SHORT ANSWER.

Write the word or phrase that best completes each statement or answers the question. 71)

Match each one of the examples below with one of the stages of the capital budgeting decision model.

 

 

Stages:

1.Identification

2.Search

3.Information-acquisition

4.Selection

5.Financing

6.Implementation and control

 

______a.Issuing corporate stock for the funds to purchase new equipment

______b.Learning how to effectively operate Machine #8 only takes 15 minutes

______c.The need to reduce the costs to process the vegetables used in producing goulash

______d.Monitoring the costs to operate a new machine

______e.Percentage of defective merchandise considered too high

______f.Will introducing the new product substantially upgrade our image as a producer of quality products?

______g.Research indicates there are five machines on the market capable of producing our product at a competitive cost.

______h.Use of the internal rate of return for each alternative

 71)

_____________

72)

Cast Iron Stove Company wants to buy a molding machine that can be integrated into its computerized

manufacturing process. It has received three bids for the machine and related manufacturer’s

specifications. The bids range from $3,500,000 to $3,550,000. The estimated annual savings of the

machines range from $260,000 to $270,000. The payback periods are almost identical and the net present

values are all within $8,000 of each other. The president just doesn’t know what to do about which

vendor to choose since all of the selection criteria are so close together.

 

Required:

What suggestions do you have for the president?

 72)

_____________

73)

Match each one of the examples below with one of the stages of the capital budgeting decision model.

 

Stages: 1.Identification4.Selection

2.Search5.Financing

3.Information-acquisition 6.Implementation and control

 

a.issuing corporate bonds for new equipment.

b.machine 5 has a very good safety record.

c.need to improve processing of vegetables in a soup company.

d.operating a new assembly line in a soup company.

e.quality control of output needs improvement.

f.the opportunity costs of investing in a new line of soup.

g.there are three vegetable processing machines on the market.

h.utilization of discounted cash flow for each alternative. 73)

_____________

74)

The Zero Machine Company is evaluating a capital expenditure proposal that requires an initial

investment of $20,960 and has predicted cash inflows of $5,000 per year for 10 years. It will have no

salvage value.

 

Required:

a.Using a required rate of return of 16%, determine the net present value of the investment proposal.

 

b.Determine the proposal’s internal rate of return.

 

 74)

_____________

75)

Toys and Junk Company is evaluating a capital expenditure proposal that requires an initial investment of $16,004 and has predicted cash inflows of $4,000 per year for 15 years. It will have no salvage value.

 

Required:

 

a.Using a required rate of return rate of 14 percent, determine the net present value of the investment proposal.

b.Determine the proposal’s internal rate of return. 75)

_____________

76)

Network Service Centre is considering purchasing a new computer network for $72,000. It will require additional working capital of $8,000. Its anticipated seven-year life will generate additional client revenue of $31,000 annually with operating costs, excluding amortization, of $14,000. At the end of seven years it will have a salvage value of $9,760 and return $8,000 in working capital.

 

Required:

 

a.If the company has a required rate of return of 12 percent, what is the net present value of the proposed investment?

b.What is the internal rate of return? 76)

_____________

77)

Next Service Center is considering purchasing a new computer network for $82,000. It will require

additional working capital of $13,000. Its anticipated eight-year life will generate additional client

revenue of $33,000 annually with operating costs, excluding amortization, of $15,000. At the end of eight

years, it will have a salvage value of $9,500 and return $5,000 in working capital. Taxes are not

considered.

 

Required:

a.If the company has a required rate of return of 14%, what is the net present value of the proposed investment?

 

b.What is the internal rate of return?

 

 77)

_____________

78)

EIF Manufacturing company needs to overhaul its drill press or buy a new one. The facts have been gathered, and are as follows:

 

Current New

machine

Purchase price, new$80,000$100,000

Current book value30,000

Overhaul needed now 40,000

Annual cash operating costs 70,00040,000

Current salvage value20,000

Salvage value in five years5,00020,000

 

Required:

 

Which alternative is the most desirable with a current required rate of return of 20 percent? Show computations. 78)

_____________

79)

ABC Boat Company is interested in replacing a moulding machine with a new improved model. The old machine has a salvage value of $20,000 now and a predicted salvage value of $4,000 in six years, if rebuilt. If the old machine is kept, it must be rebuilt in one year at a predicted cost of $40,000. The new machine costs $160,000 and has a predicted salvage value of $24,000 at the end of six years. The new machine will generate cash savings of $40,000 for each of the first three years and $20,000 for each year of its remaining six-year life.

 

Required:

 

What is the net present value of purchasing the new machine if the company has a required rate of return of 14 percent?

79)

_____________

80)

Supply the missing data for each of the following proposals.

 

Proposal AProposal BProposal C

Initial investment(a)$62,900$226,000

Annual net cash inflow$60,000(c)(e)

Life in years10610

Salvage value$0$10,000$0

Payback period in year(b)(d)5.65

Internal rate of return12%24%(f)

80)

_____________