Question : 83.Carmel Corporation considering the purchase of a machine costing $36,000 : 1236804

83.Carmel Corporation is considering the purchase of a machine costing $36,000 with a 6-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel’s average investment?   

A.$6,000.

B.$7,000.

C.$18,000.

D.$21,000.

E.$36,000.

84.Watson Corporation is considering buying a machine for $25,000. Its estimated useful life is 5 years, with no salvage value. Watson anticipates annual net income after taxes of $1,500 from the new machine. What is the accounting rate of return assuming that Watson uses straight-line depreciation and that income is earned uniformly throughout each year?   

A.6.0%.

B.8.0%.

C.8.5%.

D.10.0%.

E.12.0%.

85.The accounting rate of return is calculated as:   

A.The after-tax income divided by the total investment.

B.The after-tax income divided by the annual average investment.

C.The cash flows divided by the annual average investment.

D.The cash flows divided by the total investment.

E.The annual average investment divided by the after-tax income.

86.The following data concerns a proposed equipment purchase: 

A.62.3%.

B.32.0%.

C.15.0%.

D.7.7%.

E.5.0%.

87.The following data concerns a proposed equipment purchase: 

A.$72,000

B.$70,000

C.$37,000

D.$74,000

E.$48,950

88.An estimate of an asset’s value to the company, calculated by discounting the future cash flows from the investment at the project’s required rate of return and then subtracting the initial amount of the investment, is known as:    

A.Annual net cash flows.

B.Rate of return on investment.

C.Net present value.

D.Payback period.

E.Unamortized carrying value.

89.Which of the following cash flows is not considered when using the net present value method?    

A.Future cash inflows.

B.Future cash outflows.

C.Past cash outflows.

D.Non-uniform cash inflows.

E.Future year-end cash flows.

90.Which one of the following methods considers the time value of money in evaluating alternative capital expenditures?   

A.Accounting rate of return.

B.Net present value.

C.Payback period.

D.Cash flow method.

E.Return on average investment.

91.The hurdle rate is often set at:   

A.The rate the company could earn if the investment were placed in the bank.

B.The company’s cost of capital.

C.10% above the IRR of current projects.

D.10% above the ARR of current projects.

E.The rate at which the company is taxed on income.

92.Butler Corporation is considering the purchase of new equipment costing $30,000. The projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 12% return on its investments. The present value of an annuity of 1 for different periods follows: 

10.8929

21.6901

32.4018

43.0373

A.$24,018.

B.$(3,100).

C.$30,000.

D.$26,900.

E.$(29,520).