Question : 71. Valeria Products considering the purchase of a new machine costing : 1291740

 

71. Valeria Products is considering the purchase of a new machine costing $800,000. The machine is expected to reduce annual operating costs by $120,000 and will be depreciated using the straight-line method (with no half-year convention) over ten years with no salvage value at the end of its useful life. Assuming a 30 percent income tax rate, the machine’s payback period is: A. 5.56 years.B. 6.76 years.C. 9.26 years.D. 3.57 years.

 

72. Clinton Inc. is considering the purchase of a new equipment costing $200,000. The equipment is expected to reduce annual operating costs by $70,000 and will be depreciated using the straight-line method (with no half-year convention) over five years with no salvage value at the end of its useful life. Assuming a 40 percent income tax rate, the equipment’s payback period is: A. 2.44 years.B. 2.86 years.C. 3.45 years.D. 4.76 years.

 

73. Tyson Enterprises is considering investing in a machine that costs $30,000. The machine is expected to generate revenues of $10,000 per year for six years. The machine would be depreciated using the straight-line method with no half-year convention over its six year life and have no salvage value. The company considers the impact of income taxes in all of its capital investment decisions. The company has a 40 percent income tax rate and desires an after-tax rate of return of 12 percent on its investment. The net present value of the machine is: A. $2,891.B. $(5,332).C. $(13,555).D. $15,225.

 

74. A local day spa is considering investing in a machine that costs $60,000. The machine is expected to generate revenues of $25,000 per year for five years. The machine would be depreciated using the straight-line method with no half-year convention over its five year life and have no salvage value. The company considers the impact of income taxes in all of its capital investment decisions. The company has a 35 percent income tax rate and desires an after-tax rate of return of 14 percent on its investment. The net present value of the machine is: A. $36,985.B. $10,207.C. $25,828.D. $22,566.

 

75. Pauline’s Products Inc. is considering investing in a new piece of equipment that costs $75,000. The equipment is expected to generate revenues of $25,000 per year for five years. The equipment would be depreciated using the straight-line method over its five year life and have a salvage value of $8,000. The company considers the impact of income taxes in all of its capital investment decisions. The company has a 35 percent income tax rate and desires an after-tax rate of return of 12 percent on its investment. The net present value of the equipment is: A. $7,042.B. $(13,472).C. $21,248.D. $5,453.

 

76. Mac Products Inc. is considering the purchase of a new machine. The estimated cost of the machine is $30,000. The machine is expected to generate annual cash inflows over the next three years as follows: 

Year

Annual cash flow

1

$25,000

2

$20,000

3

$15,000

 

 

The machine will be depreciated with no half-year convention over its three-year life using the straight-line method and is not expected to have a residual value at the end of its useful life. The company considers income tax effects in all of its capital investment decisions. If the company’s income tax rate is 35% and they desire an after-tax return of 14% on investments, the net present value of the new machine is: A. $8,965.B. $24,056.C. $12,338.D. $840.

 

77. Buchanan Enterprises is considering investing in a machine that costs $400,000. The machine is expected to generate revenues of $175,000 per year for five years. The machine would be depreciated using the straight-line method with no half-year convention over five years and have no salvage value. The company considers the impact of income taxes in all of its capital investment decisions. The company has a 40 percent income tax rate and desires an after-tax rate of return of 10 percent on its investment. The net present value of the machine is: A. $179,992.B. $(13,338).C. $119,337.D. $(1,966).

 

 

 

 

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