Question : 76. The payback period for this proposed investment is: A. 4.5 years.B. Twelve years.C. Six : 1229662

76. The payback period for this proposed investment is: 
A. 4.5 years.
B. Twelve years.
C. Six years.
D. Two years.

77. The return on average investment for this proposed investment is: 
A. 8 1/3%.
B. 50%.
C. 25%.
D. 11.1%.

78. Compute the net present value of this proposed investment, using a discount rate of 12%. (An annuity table shows that the present value of $1 received annually for six years, discounted at 12%, is 4.111.) 
A. $105,600.
B. ($41,078).
C. $369,600.
D. $434,121.

The management of Ortega Manufacturing has three different proposals under consideration. The Accounting Department has prepared the following information:

*Management’s required rate of return is 15%.

79. Which of the above proposals generates the greatest annual cash flow? 
A. Proposal A.
B. Proposal B.
C. Proposal C.
D. Cannot be determined with the given information.

80. The above data indicate that: 
A. After considering the timing of future cash flows, each of the three proposals is expected to provide a rate of return in excess of 15%.
B. Proposal A will generate net losses annually.
C. If the salvage value of proposal A were $52,000 instead of zero, proposal A would have the highest net present value.
D. The present value of proposal B’s future cash flows is $2,471,600.

81. On the basis of the above data, which of the following is false? 
A. Proposal A should be considered unacceptable.
B. Proposal C is the best alternative because it has the shortest payback period, which is the most meaningful of the capital budgeting statistics.
C. Proposal A’s negative net present value indicates that this alternative will not generate management’s required rate of return.
D. Although proposals B and C are each acceptable, proposal B is a better investment considering the time value of money.

Rooney, Inc. is considering the purchase of a new machine costing $640,000. The machine’s useful life is expected to be 8 years with no salvage value. The straight-line depreciation method will be used. The net increase in annual after tax cash flow is expected to be $147,000. Rooney estimates its cost of capital to be 14%. (The present value of a $1 annuity for 8 years at 14% is 4.639, and the present value of $1 to be received in 8 years is 0.351)

82. The net present value of the investment in the machine under consideration is: 
A. $40,520.
B. $41,933.
C. $60,480.
D. $75,160.

83. Upper level managers at Rooney, Inc. are concerned that employee estimates of future cash flows from the new machine may be overly optimistic. To what dollar amount can the annual after tax cash flow fall before the investment in the new machine should be rejected? 
A. $640,000.
B. $224,640.
C. $168,080.
D. $137,961.

84. Capital budgeting proposals often require input from all of the following stakeholders except: 
A. Managers.
B. Employees.
C. Shareholders.
D. Directors.

85. The accuracy of national capital budget decisions is critically dependent on: 
A. The project life span.
B. Currency exchange rates.
C. Employee morale.
D. Supplier availability.

The Terme Corporation is contemplating the purchase of new equipment which may potentially increase revenues by 25%. Currently, sales are $750,000 per year and variable costs are 55% of sales. The equipment is expected to last for 5 years with no residual value. Should the company invest in this equipment, the cash outflow expected at the beginning of the year is $357,500.

86. By how much would Terme’s annual gross profit increase if the investment is undertaken? 
A. $750,000.
B. $84,375.
C. $187,500.
D. $103,125.

87. What is the amount of depreciation deduction the company could expense annually assuming the straight line depreciation method is used? 
A. $75,000.
B. $41,250.
C. $71,500.
D. $30,250.

88. Ignoring income taxes, what is the estimated annual net operating income increase/decrease? 
A. $9,375.
B. $12,875.
C. $43,125.
D. $54,125.