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11–115

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:

11–117

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:

54.

The management of Cantell Corporation is considering a project that would require an

initial investment of $47,000. No other cash outflows would be required. The present value

of the cash inflows would be $55,930. The profitability index of the project is closest to:

55.

The net present value of an investment project is $28,842 and its project profitability index

is 0.1518. The initial investment in this project was:

56.

The Gomez Corporation is considering two projects, T and V. The following information

has been gathered on these projects:

Project

T

Project

V

Initial investment needed

$112,500

$75,000

Present value of future cash

inflows

$168,000

$107,000

Useful life

10 years

10 years

Based on this information, which of the following statements is (are) true?

I. Project T has the highest ranking according to the project profitability index criterion.

II. Project V has the highest ranking according to the net present value criterion.

11–134

57.

Villena Corporation is considering a project that would require an investment of $48,000.

No other cash outflows would be involved. The present value of the cash inflows would be

$52,800. The profitability index of the project is closest to:

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