Question :
146.A project that cost $75,000 has a useful life of : 1311940
146.A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000. The internal rate of return is 12% and the annual rate of return is 18%. The amount of the annual net income was
a.$7,020.
b.$6,480.
c.$4,680.
d.$4,320.
147.A project has annual income exclusive of depreciation of $80,000. The annual rate of return is 15% and annual depreciation is $20,000. There is no salvage value. The internal rate of return is 12%. The initial cost of the project was
a.$400,000.
b.$500,000.
c.$1,000,000.
d.$800,000.
148.A project that cost $80,000 with a useful life of 5 years is being considered. Straight-line depreciation is being used and salvage value is $5,000. The project will generate annual cash flows of $21,375. The annual rate of return is
a.15%.
b.50.3%.
c.16%.
d.17%.
Use the following information for questions 149 and 150.
A company is considering purchasing factory equipment that costs $480,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $135,000 and annual operating expenses exclusive of depreciation expense are expected to be $39,000. The straight-line method of depreciation would be used.
149.If the equipment is purchased, the annual rate of return expected on this equipment is
a.40.0%.
b. 7.5%.
c.15.0%.
d.20.0%.
150.The cash payback period on the equipment is
a.13.3 years.
b.8.0 years.
c.5.0 years.
d.2.5 years.
151.The capital budgeting technique that indicates the profitability of a capital expenditure is the
a.profitability index method.
b.net present value method.
c.internal rate of return method.
d.annual rate of return method.
152.The annual rate of return method is based on
a.accounting data.
b.the time value of money data.
c.market values.
d.cash flow data.
153.Disadvantages of the annual rate of return method include all of the following except that
a.it relies on accrual accounting numbers instead of actual cash flows.
b.it does not consider the time value of money.
c.no consideration is given as to when the cash inflows occur.
d.management is unfamiliar with the information used in the computation.
154.A company projects an increase in net income of $30,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $100,000. What is the annual rate of return on this investment?
a.10%
b.15%
c.20%
d.25%
155.Colaw Company is considering buying equipment for $240,000 with a useful life of five years and an estimated salvage value of $12,000. If annual expected income is $21,000, the denominator in computing the annual rate of return is
a.$240,000.
b.$120,000.
c.$126,000.
d.$252,000.
156.The annual rate of return is computed by dividing expected annual
a.cash inflows by average investment.
b.net income by average investment.
c.cash inflows by original investment.
d.net income by original investment.
157.All of the following statements about the annual rate of return method are correct except that it
a.indicates the profitability of a capital expenditure.
b.ignores the salvage value of an investment.
c.does not consider the time value of money.
d.compares the annual rate of return to management’s minimum rate of return.
