Question : 25) The net present value method focuses on: A) cash : 1217112

25) The net present value method focuses on:

A) cash inflows

B) accrual-accounting net income

C) cash outflows

D) Both A and C are correct.

26) If the net present value for a project is zero or positive, this means that the:

A) project should be accepted

B) project should not be accepted

C) expected rate of return is below the required rate of return

D) Both A and C are correct.

27) 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 $300,000. The annual cost savings if the new machine is acquired will be $80,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $40,000. 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) $3,264

B) $24,836

C) $28,120

D) $300,000

28) Shirt Company wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual cash inflows of $150,000. The required rate of return is 12% and the current machine is expected to last for four years. What is the maximum dollar amount Shirt Company would be willing to spend for the machine, assuming its life is also four years? Income taxes are not considered.

A) $263,500

B) $360,300

C) $395,870

D) $455,550

29) The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $475,000. The investment is expected to generate $175,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $25,000. 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) $59,775; yes

B) $34,775; no

C) $509,775; yes

D) $163,375; no

30) Wet and Wild Water Company drills small commercial water 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$320,000

Working capital$ 64,000

Operations (per year for four years):

Cash receipts$320,000

Cash expenditures$ 176,000

Disinvestment:

Salvage value of drill (existing)$ 32,000

Discount rate20%

What is the net present value of the investment? Assume there is no recovery of working capital.

A) $(124,280)

B) $20,672

C) $84,724

D) $372,672

31) The capital budgeting method that calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of expected cash outflows is the:

A) net present value method

B) accrual accounting rate-of-return method

C) payback method

D) internal rate of return

32) In capital budgeting, a project is accepted only if the internal rate of return equals or:

A) exceeds the required rate of return

B) is less than the required rate of return

C) exceeds the net present value

D) exceeds the accrual accounting rate of return

33) The Zeron Corporation recently purchased a new machine for its factory operations at a cost of $921,250. The investment is expected to generate $250,000 in annual cash flows for a period of six years. The required rate of return is 14%. The old machine has a remaining life of six years. The new machine is expected to have zero value at the end of the six-year period. The disposal value of the old machine at the time of replacement is zero. What is the internal rate of return?

A) 15%

B) 16%

C) 17%

D) 18%

34) Brown Corporation recently purchased a new machine for $339,013.20 with a ten-year life. The old equipment has a remaining life of ten years and no disposal value at the time of replacement. Net cash flows will be $60,000 per year. What is the internal rate of return?

A) 12%

B) 16%

C) 20%

D) 24%