31. Beaver Corporation is investigating the purchase of a new threading machine that costs
$18,000. The machine would save about $4,000 per year over the present method of threading
component parts, and would have a salvage value of about $3,000 in 6 years when the machine
would be replaced. The company’s required rate of return is 12%. The machine‘s net present
value is closest to:
32. Frick Road Paving Corporation is considering an investment in a curb-forming machine.
The machine will cost $180,000, will last 10 years, and will have a $30,000 salvage value at the
end of 10 years. The machine is expected to generate net cash inflows of $40,000 per year in
each of the 10 years. Frick’s discount rate is 10%. The net present value of the proposed
investment is closest to:
33. Czlapinski Corporation is considering a capital budgeting project that would require an
initial investment of $440,000 and working capital of $32,000. The working capital would be
released for use elsewhere at the end of the project in 4 years. The investment would generate
annual cash inflows of $147,000 for the life of the project. At the end of the project, equipment
that had been used in the project could be sold for $11,000. The company’s discount rate is 7%.
The net present value of the project is closest to:
34. Correl Corporation has provided the following data concerning an investment project that
it is considering:
Initial investment $190,000
Annual cash flow $75,000 per year
Salvage value at the end of the project $25,000
The life of the project is 4 years. The company’s discount rate is 15%. The net present value of
the project is closest to:
35. Bullinger Corporation has provided the following data concerning an investment project
that it is considering:
Initial investment $470,000
Annual cash flow $134,000 per year
Salvage value at the end of the project $27,000
Expected life of the project 4 years
Discount rate 14%
The net present value of the project is closest to:
36. Naomi Corporation has a capital budgeting project that has a negative net present value
of $36,000. The life of this project is 6 years. Naomi’s discount rate is 20%. By how much would
the annual cash inflows from this project have to increase in order to have a positive net present
value?
37. Peter wants to buy a computer which he expects to save him $4,000 each year in
bookkeeping costs. The computer will last for five years, and at the end of five years it will have
no salvage value. If Peter’s required rate of return is 12%, what is the maximum price Peter
should be willing to pay for the computer now?
38. The following data on a proposed investment project have been provided:
Cost of equipment $50,000
Working capital required $30,000
Salvage value of equipment $0
Annual cash inflows from the project $20,000
Required rate of return 20%
Life of the project 8 years
The working capital would be released for use elsewhere at the end of the project. The net
present value of the project is closest to:
39. Zabarkes Corporation is considering a capital budgeting project that would require an
initial investment of $640,000 and working capital of $79,000. The working capital would be
released for use elsewhere at the end of the project in 3 years. The investment would generate
annual cash inflows of $205,000 for the life of the project. At the end of the project, equipment
that had been used in the project could be sold for $29,000. The company’s discount rate is 7%.
The net present value of the project is closest to:
40. Riveros, Inc., is considering the purchase of a machine that would cost $120,000 and
would last for 8 years. At the end of 8 years, the machine would have a salvage value of $29,000.
The machine would reduce labor and other costs by $25,000 per year. Additional working capital
of $9,000 would be needed immediately. All of this working capital would be recovered at the end
of the life of the machine. The company requires a minimum pretax return of 18% on all
investment projects. The net present value of the proposed project is closest to:
41. Kingsolver Corporation has provided the following data concerning an investment project
that it is considering:
Initial investment $450,000
Working capital $16,000
Annual cash flow $133,000 per year
Salvage value at the end of the project $6,000
Expected life of the project 3 years
Discount rate 8%
The working capital would be released for use elsewhere at the end of the project. The net
present value of the project is closest to:
42. Schoultz Corporation has provided the following data concerning an investment project
that it is considering:
Initial investment $700,000
Annual cash flow $266,000 per year
The life of the project is 4 years. The company’s discount rate is 12%. The net present value of
the project is closest to:
43. Sturn Corporation purchased a machine with an estimated useful life of seven years. The
machine will generate cash inflows of $9,000 each year over the next seven years. If the machine
has no salvage value at the end of seven years, if Stutz’s discount rate is 10%, and if the net
present value of this investment is $17,000 then the purchase price of the machine was closest
to:
44. Mujalli Corporation is considering a capital budgeting project that would require an initial
investment of $200,000. The investment would generate annual cash inflows of $64,000 for the
life of the project, which is 4 years. At the end of the project, equipment that had been used in
the project could be sold for $10,000. The company’s discount rate is 9%. The net present value
of the project is closest to:
45. Dul Corporation has provided the following data concerning an investment project that it
is considering:
Initial investment $170,000
Working capital $64,000
Annual cash flow $60,000 per year
Salvage value at the end of the project $18,000
The working capital would be released for use elsewhere at the end of the project in 3 years.
The company’s discount rate is 7%. The net present value of the project is closest to:
46. Tangen Corporation is considering the purchase of a machine that would cost $380,000
and would last for 6 years. At the end of 6 years, the machine would have a salvage value of
$80,000. By reducing labor and other operating costs, the machine would provide annual cost
savings of $104,000. The company requires a minimum pretax return of 14% on all investment
projects. The net present value of the proposed project is closest to:
47. Valotta Corporation has provided the following data concerning an investment project
that it is considering:
Initial investment $690,000
Working capital $70,000
Annual cash flow $283,000 per year
Salvage value at the end of the project $21,000
Expected life of the project 4 years
Discount rate 11%
The working capital would be released for use elsewhere at the end of the project. The net
present value of the project is closest to:
48. Baker Corporation is considering buying a new donut maker. This machine will replace an
old donut maker that still has a useful life of 4 years. The new machine will cost $3,500 a year to
operate, as opposed to the old machine, which costs $3,900 per year to operate. Also, because of
increased capacity, an additional 10,000 donuts a year can be produced. The company makes a
contribution margin of $0.15 per donut. The old machine can be sold for $6,000 and the new
machine costs $28,000. The incremental annual net cash inflows provided by the new machine
would be:
49. Bevans Corporation is considering a capital budgeting project that would require an initial
investment of $190,000. The investment would generate annual cash inflows of $58,000 for the
life of the project, which is 4 years. The company’s discount rate is 7%. The net present value of
the project is closest to:
50. The following data pertain to an investment proposal:
Cost of the investment $30,000
Annual cost savings $9,000
Estimated salvage value $4,000
Life of the project 5 years
Discount rate 12%
The net present value of the proposed investment is closest to:
51. (Ignore income taxes in this problem) The management of Urbine Corporation is
considering the purchase of a machine that would cost $350,000, would last for 6 years, and
would have no salvage value. The machine would reduce labor and other costs by $79,000 per
year. The company requires a minimum pretax return of 14% on all investment projects. The net
present value of the proposed project is closest to:
52. Vinup Corporation has provided the following data concerning an investment project that
it is considering:
Initial investment $100,000
Working capital $73,000
Annual cash flow $40,000 per year
Salvage value at the end of the project $29,000
The working capital would be released for use elsewhere at the end of the project in 4 years.
The company’s discount rate is 13%. The net present value of the project is closest to:
53. A project requires an initial investment of $70,000 and has a project profitability index of
0.932. The present value of the future cash inflows from this investment is: