Question : 31) Which of the following results of net present value : 1186183

 

31) Which of the following results of net present value analyses is the least acceptable?

A) $(15,000)

B) $(1,000)

C) $12,000

D) $0

E) $20,000

 

Use the information below to answer the following question(s).

 

Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:

 

Initial investment:

 

   Asset

$80,000

   Working capital

$16,000

Operations (per year for four years):

 

   Cash receipts

$80,000

   Cash expenditures

$44,000

Disinvestment: Salvage value of drill

(end of year four)

$8,000

Discount rate 10 percent

 

 

Note: Other than the initial investment, cash flows are end of period.

 

32) What is the net present value of the investment?

A) $(25,540)

B) $39,579

C) $34,507

D) $44,000

E) $18,115

33) Project ABC is under consideration. Annual cash flows equal $50,000 per year for 5 years. During the first three years the required rate of return is 2 percent. The required rate of return for cash flows in the final two years is 10 percent.

What is the present value of cash inflows?

A) $250,000

B) $247,730

C) $235,650

D) $209,391

E) $203,642

34) Use the following information to determine which machine to purchase based on net present value.

 

 

Machine 1

Machine 2

Machine 3

Initial investment

$225,000

$235,000

$210,000

Annual cash inflows

$50,000

$50,000

$50,000

Useful lives

5 years

4 years

8 years

 

Cost of capital is 10 percent.

A) purchase machine 3

B) purchase machine 2

C) purchase machine 1

D) purchase any of the three machines

E) purchase all three machines

 

35) Investment A requires a net investment of $600,000. The required rate of return is 10 percent for the three-year annuity.

What are the annual cash inflows if the net present value equals 0?

A) $184,842

B) $241,269

C) $249,791

D) $271,316

E) $360,000

36) Upper Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $150,000. The annual cost savings if the new machine is acquired will be $40,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $20,000. Upper Darby Park Department is assuming no tax consequences. If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project?

A) $1,632

B) $12,418

C) $14,050

D) $150,000

E) $70,000

 

37) The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $350,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered.

A) $119,550; yes

B) $69,550; no

C) $1,019,550; yes

D) $326,750; no

E) $500,000; yes

38) Wagner Ltd. is considering investing in a new piece of equipment for its factory. It estimates that annual cash flows would be $17,000 and the equipment would last for 8 years. The company’s required rate of return is 12%. What is the most that the company should be willing to invest in this equipment? (Ignore income taxes.)

A) $84,450

B) $136,000

C) $61,280

D) $128,115

E) $94,580

 

39) Easton Ltd. is considering investing in a new piece of machinery for its factory. The machine costs $340,000 and is expected to last 7 years. It estimates that annual cash flows would be $82,000 and the equipment would have a salvage value of $13,000. The company’s hurdle rate is 11%. What is the NPV of this investment? (Ignore income taxes.)

A) $87,625

B) $46,400

C) $52,660

D) $234,000

E) $247,000

 

40) Weston Ltd. is considering investing in a new piece of equipment for its factory. It estimates that the machine will generate an additional $120,000 per year in revenues. The contribution margin on these incremental revenues is estimated at 40%. Incremental annual fixed costs are estimated to be $8,200. The equipment would have a salvage value of $14,000 at the end of 6 years. The company’s required rate of return is 13%. What is the NPV of this investment if the equipment costs $250,000? (Ignore income taxes.)

A) $2,800

B) ($51,393)

C) $204,803

D) $11,768

E) ($84,173)