Question : 11. If the net present value of an investment negative, then: A. the : 1291734

 

11. If the net present value of an investment is negative, then: 
A. the actual rate of return is less than the discount rate.
B. the actual rate of return is more than the discount rate.
C. the actual rate of return is negative.
D. the discount rate is negative.

 

12. If the net present value of an investment is negative, then: 
A. the present value of the cash inflows is greater than the present value of the cash outflows.
B. the discount rate is negative.
C. the actual rate of return is less than the discount rate used.
D. increasing the cost of the investment will change the net present value to a positive number.

 

13. Blossoms Inc., a local florist, is considering replacing its current refrigerator used for storing flowers with a larger one. The estimated cost of the new refrigerator will be $30,000. Using a discount rate of 15%, the company calculates a net present value for the new refrigerator of $6,000. Based on this information, which of the following statements is true? 
A. If the actual cost of the new refrigerator ends up being greater than $36,000, the net present value will become negative.
B. If the actual cost of the new refrigerator ends up being less than $36,000, the net present value will become negative.
C. If the actual cost of the new refrigerator ends up being $30,000, the actual rate of return is equal to 15%.
D. If the actual cost of the new refrigerator ends up being less than $30,000, the company should not make the investment.

 

14. Woody Manufacturing Inc. is considering the purchase of a new machine. They have narrowed their choices down to two machines, Machine #1 and Machine #2, each having a cost of $35,000. The following information is available regarding the expected cash inflows from each machine:
 

Year

Machine #1

Machine #2

1

$14,000

$42,000

2

  14,000

           0

3

  14,000

           0

 

 

 

When using net present value analysis, Woody uses the same cost of capital for both machines and both machines have a positive net present value.

Based on the above information, which of the following statements is true? 
A. Machine #1 will have a higher net present value than Machine #2.
B. Machine #1 will have a lower net present value than Machine #2.
C. Machines #1 and #2 will have the same net present values.
D. Machines #1 and #2 will have the same internal rates of return.

 

15. Cameo Inc., a local company specializing in home repairs, is considering replacing its older van with a new and larger one. The estimated cost of the new van will be $45,000. Using a discount rate of 16%, the company calculates a net present value for the new van of $(7,000). Based on this information, which of the following statements is true? 
A. The actual rate of return on the new van is negative.
B. If the company purchases the van, they are guaranteed a rate of return of 16%.
C. Using a higher discount rate should cause the net present value to become positive.
D. If the actual cost of the new van ends up being less than $38,000, the net present value will become positive.

 

16. Newman Auto Repair is considering the purchase of a hydraulic machine costing approximately $35,000. Using a discount rate of 18%, the present value of future cash inflows are calculated to be $42,000. To yield at least an 18% return, the actual cost of the machine should not exceed the $35,000 estimate by more than: 
A. $28,000.
B. $49,000.
C. $7,000.
D. $6,300.

 

17. Mid-Town Plumbers Inc. is considering the purchase of a machine costing approximately $6,000. Using a discount rate of 19%, the present value of future cash inflows are calculated to be $6,700. To yield at least an 19% return, the actual cost of the machine should not exceed the $6,000 estimate by more than: 
A. $4,000
B. $6,000
C. $800
D. $700

 

18. Big Al’s is considering the purchase of a capital investment costing $33,000. Annual cash savings of $8,000, with a present value at 14 percent of $37,111, are expected for the next eight years. Given this information, which of the following statements is true? 
A. This investment offers an actual rate of return of 14%.
B. This investment offers an actual rate of return of less than 14%.
C. This investment offers an actual rate of return of more than 14%.
D. This investment offers a negative rate of return.

 

19. Floyd Manufacturing purchased an asset costing $65,000. Annual operating cash inflows are expected to be $12,000 each year for ten years. No salvage value is expected at the end of the asset’s life. Assuming Floyd’s cost of capital is 11 percent, what is the asset’s net present value? (ignore income taxes) 
A. $4,443
B. $5,670
C. $4,560
D. $17,670

 

20. O’Malley Inc. purchased an asset costing $90,000. Annual operating cash inflows are expected to be $20,000 each year for six years. No salvage value is expected at the end of the asset’s life. Assuming O’Malley’s cost of capital is 16 percent, what is the asset’s net present value? (ignore income taxes) 
A. $(16,306)
B. $30,000
C. $(5,600)
D. $4,800

 

 

 

 

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