Question :
61. The calculation of the payback period for an investment when : 1225725
61. The calculation of the payback period for an investment when net cash flow is even (equal) is:
A. Cost of investment/Annual net cash flow
B. Cost of investment/Total net cash flow
C. Annual net cash flow/Cost of investment
D. Total net cash flow/Cost of investment
E. Total net cash flow/Annual net cash flow
62. Coffer Co. is analyzing two projects for the future. Assume that only one project can be selected.
If the company is using the payback period method and it requires a payback of three years or less, which project should be selected?
A. Project Y.
B. Project X.
C. Both X and Y are acceptable projects.
D. Neither X nor Y is an acceptable project.
E. Project Y because it has a lower initial investment.
63. The time expected to pass before the net cash flows from an investment would return its initial cost is called the:
A. Amortization period.
B. Payback period.
C. Interest period.
D. Budgeting period.
E. Discounted cash flow period.
64. A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the payback period for the new machine?
A. 4 years.
B. 6 years.
C. 10.5 years.
D. 14 years.
E. 42 years.
65. A company is considering the purchase of a new piece of equipment for $90,000. Predicted annual cash inflows from this investment are $36,000 (year 1), $30,000 (year 2), $18,000 (year 3), $12,000 (year 4) and $6,000 (year 5). The payback period is:
A. 4.50 years.
B. 4.25 years.
C. 3.50 years.
D. 3.00 years.
E. 2.50 years.
66. A disadvantage of using the payback period to compare investment alternatives is that:
A. It ignores cash flows beyond the payback period.
B. It includes the time value of money.
C. It cannot be used when cash flows are not uniform.
D. It cannot be used if a company records depreciation.
E. It cannot be used to compare investments with different initial investments.
67. A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year. The company’s tax rate is 40%. What is the payback period for the new machine?
A. 3.0 years.
B. 6.0 years.
C. 7.5 years.
D. 12.0 years.
E. 20.0 years.
68. A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine’s output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset’s life appears below. What is the payback period for this machine?
A. 24 years.
B. 12 years.
C. 6 years.
D. 4 years.
E. 1 year.
69. A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine’s output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset’s life appears below. What is the accounting rate of return for this machine?
A. 33.3%.
B. 16.7%.
C. 50.0%.
D. 8.3%.
E. 4%.
70. After-tax net income divided by the annual average investment in an investment, is the:
A. Net present value rate.
B. Payback rate.
C. Accounting rate of return.
D. Earnings from investment.
E. Profit rate.
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