Question : 21. C & K Inc. purchased a delivery van costing $65,000. : 1291735

21. C & K Inc. purchased a delivery van costing $65,000. Annual operating cash inflows are expected to be $18,000 each year for six years. At the end of the asset’s life, the salvage value is expected to be $5,000. Assuming C & K’s cost of capital is 15 percent, what is the asset’s net present value? (ignore income taxes) A. $3,121B. $22,044C. $5,283D. $959

22. Mid-Town Products Inc. purchased equipment costing $150,000. Annual operating cash inflows are expected to be $26,000 each year for fifteen years. At the end of the equipment’s life, the salvage value is expected to be $18,000. If Mid-Town’s cost of capital is 14 percent, what is the asset’s net present value? (ignore income taxes) A. $4,245B. $2,212C. $18,000D. $23,592

23. Palmetto Products is considering the purchase of a new industrial machine. The estimated cost of the machine is $50,000. The machine is expected to generate annual cash inflows for the next four years as follows: 

Year

Annual cash flow

1

$25,000

2

  20,000

3

  20,000

4

  15,000

The machine is not expected to have a residual value at the end of its useful life. If Palmetto uses a discount rate of 16%, what is the expected net present value of the machine? (ignore taxes) A. $12,800B. $18,969C. $(5,816)D. $7,515

24. Pristine Products is considering the purchase of a new machine. The estimated cost of the machine is $45,000. The machine is expected to generate annual cash inflows for the next four years as follows: 

Year

Annual cash flow

1

$10,000

2

  15,000

3

  25,000

4

  27,000

The machine is not expected to have a residual value at the end of its useful life. If the company uses a discount rate of 15%, what is the expected net present value of the machine? (ignore taxes) A. $6,914B. $6,253C. $(2,757)D. $4,200

25. Trenton Inc. is considering an equipment purchase that has a cost of $15,000. The equipment is expected to have a salvage value of $2,000 at the end of three years. In addition, the equipment is expected to generate cash flows over the next three years as follows: 

Year

Annual cash flow

1

$8,000

2

$6,000

3

$3,000

If Trenton’s cost of capital is equal to 14 percent, the net present value of the equipment is: (ignore income taxes) A. $(1,340).B. $10.C. $(357).D. $993.

26. Grant Inc. would like to replace an outdated piece of equipment with a newer model. Grant has determined that the new equipment needs to generate annual cash inflows of $10,000 for six years and have a salvage value at the end of year six of $4,000. Grant uses a cost of capital equal to 15 percent when making capital investment decisions. Given this information, which of the following statements is true regarding the cost of the new equipment if, using net present value analysis, Grant decides to purchase the new equipment because it has a positive net present value? A. The cost of the equipment was $64,000 or less.B. The cost of the equipment was $73,600 or less.C. The cost of the equipment was $39,574 or less.D. The cost of the equipment was $52,983 or less.

27. Bluebird Inc. requires all capital investments to generate an internal rate of return of 14%. Bluebird is currently considering an investment that is expected to generate annual cash inflows of $12,000 for 5 years. The cost of the investment should not exceed: A. $60,000.B. $41,197.C. $31,164.D. $6,233.

28. Oakwood Inc. requires all capital investments to generate an internal rate of return of 16%. Oakwood is currently considering an investment that is expected to generate annual cash inflows of $15,000 for 7 years. The cost of the investment should not exceed: A. $16,800.B. $37,149.C. $60,579.D. $105,000.

29. Butner Inc. requires all capital investments to generate an internal rate of return of 14%. The company is considering an investment costing $100,000 that is expected to generate equal, annual cash inflows for ten years. The annual cash inflows are expected to be: A. $19,171.B. $16,000.C. $38,088.D. $12,800.

30. NPV calculations generally require which of the following simplifying assumptions? A. All cash flows occur in the middle of the period.B. All cash flows occur evenly during the period.C. Cash flows occur equally at the beginning and end of the period.D. All cash flows occur at the end of the period.