Question :
101.A new manufacturing machine expected to cost $278,000, have an : 1258735
101.A new manufacturing machine is expected to cost $278,000, have an eight-year life, and a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation. Compute the payback period for the purchase.
A. 8.7 years.
B. 3.8 years.
C. 4.2 years.
D. 7.3 years.
E. 5.4 years.
102.A new manufacturing machine is expected to cost $278,000, have an eight-year life, and a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation. Compute the accounting rate of return for the investment.
A. 22.7%.
B. 23.4%.
C. 46.9%.
D. 12.2%.
E. 24.5%.
103.Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.
Annual NetCash Flows
Year 1$40,000
Year 2$40,000
Year 3$35,000
Year 4$35,000
Year 5$30,000
Compute the payback period for this investment. (Round to two decimal places.)
A. 2.85 years.
B. 2.57 years.
C. 3.00 years.
D. 2.50 years.
E. 3.62 years.
104.A machine costs $180,000 and will have an eight-year life, a $20,000 salvage value, and straight-line depreciation is used. Management estimates the machine will yield an after-tax net income of $12,500 each year. Compute the accounting rate of return for the investment.
A. 12.5%.
B. 26.8%.
C. 11.8%.
D. 10.8%.
E. 22.5%.
105.Poe Company is considering the purchase of new equipment costing $80,000. The projected annual cash inflows are $30,200, to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine.
PeriodsPresent Valueof 1 at 10%Present Value of anAnnuity of 1 at 10%
10.90910.9091
20.82641.7355
30.75132.4869
40.68303.1699
A. ($15,731).
B. ($4,896).
C. $15,731.
D. $4,896.
E. $32,334.
106.Poe Company is considering the purchase of new equipment costing $80,000. The projected net cash flows are $35,000 for the first two years and $30,000 for years three and four. The revenue is to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Poe requires a 10% return on its investments. The present value of an annuity of 1 and present value of an annuity for different periods is presented below. Compute the net present value of the machine.
PeriodsPresent Valueof 1 at 10%Present Value of anAnnuity of 1 at 10%
10.90910.9091
20.82641.7355
30.75132.4869
40.68303.1699
A. ($15,731).
B. ($4,896).
C. $15,731.
D. $4,896.
E. $23,775.
107.Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the break-even time (BET) period for this investment. (Round to two decimal places.)
Annual NetCash FlowsPresent Valueof 1 at 10%
Year 0 1.0000
Year 1$40,000.9091
Year 2$40,000.8264
Year 3$35,000.7513
Year 4$35,000.6830
Year 5$30,000.6209
A. 2.85 years.
B. 2.57 years.
C. 3.17 years.
D. 2.98 years.
E. 3.62 years.
108.Capital budgeting is the process of analyzing:
A. Cash outflows only.
B. Short-term investments.
C. Long-term investments.
D. Investments with certain outcomes only.
E. Operating revenues.
109.The process of analyzing alternative long-term investments and deciding which assets to acquire or sell is known as:
A. Planning and control.
B. Capital budgeting.
C. Variance analysis.
D. Master budgeting.
E. Managerial accounting.
110.Capital budgeting decisions are risky because all of the following are true except:
A. The outcome is uncertain.
B. Large amounts of money are usually involved.
C. The investment involves a long-term commitment.
D. The decision could be difficult or impossible to reverse.
E. They rarely produce net cash flows.
