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11-135
58.
The management of Edelmann Corporation is considering the following three investment
projects:
Project
R
Project
S
Project
T
Investment required
$13,000
$59,000
$79,000
Present value of cash
inflows
$13,520
$66,080
$87,690
Rank the projects according to the profitability index, from most profitable to least
profitable.
11-136
59.
Crowley Corporation is considering three investment projects: F, G, and H. Project F would
require an investment of $21,000, Project G of $49,000, and Project H of $82,000. No other
cash outflows would be involved. The present value of the cash inflows would be $21,210
for Project F, $57,820 for Project G, and $95,120 for Project H. Rank the projects
according to the profitability index, from most profitable to least profitable.
60.
Bowen Corporation is considering several investment proposals, as shown below:
Investment Proposal
A
B
C
D
Investment
required
$95,000
$120,000
$90,000
$150,000
Present
value of
future net
cash flows
$107,000
$130,000
$105,000
$180,000
If the project profitability index is used, the ranking of the projects from most to least
profitable would be:
61.
An expansion at Fidell, Inc., would increase sales revenues by $75,000 per year and cash
operating expenses by $38,000 per year. The initial investment would be for equipment
that would cost $135,000 and have a 5 year life with no salvage value. The annual
depreciation on the equipment would be $27,000. The simple rate of return on the
investment is closest to:
62.
The management of Stanforth Corporation is investigating automating a process. Old
equipment, with a current salvage value of $24,000, would be replaced by a new machine.
The new machine would be purchased for $516,000 and would have a 6 year useful life
and no salvage value. By automating the process, the company would save $173,000 per
year in cash operating costs. The simple rate of return on the investment is closest to:
63.
Mercer Corporation is considering replacing a technologically obsolete machine with a
new state-of-the-art numerically controlled machine. The new machine would cost
$250,000 and would have a ten-year useful life. Unfortunately, the new machine would
have no salvage value. The new machine would cost $12,000 per year to operate and
maintain, but would save $55,000 per year in labor and other costs. The old machine can
be sold now for scrap for $10,000. The simple rate of return on the new machine is closest
to:
64.
Messersmith Corporation is investigating automating a process by purchasing a machine
for $688,000 that would have an 8 year useful life and no salvage value. By automating the
process, the company would save $160,000 per year in cash operating costs. The new
machine would replace some old equipment that would be sold for scrap now, yielding
$19,000. The annual depreciation on the new machine would be $86,000. The simple rate
of return on the investment is closest to:
65.
Wombles Corporation is contemplating purchasing equipment that would increase sales
revenues by $478,000 per year and cash operating expenses by $249,000 per year. The
equipment would cost $738,000 and have a 9 year life with no salvage value. The annual
depreciation would be $82,000. The simple rate of return on the investment is closest to:
66.
The management of Duker Corporation is investigating purchasing equipment that would
increase sales revenues by $130,000 per year and cash operating expenses by $39,000 per
year. The equipment would cost $328,000 and have an 8 year life with no salvage value.
The simple rate of return on the investment is closest to:
67.
Baldock Inc. is considering the acquisition of a new machine that costs $420,000 and has
a useful life of 5 years with no salvage value. The incremental net operating income and
incremental net cash flows that would be produced by the machine are:
Incremental Net
Operating Income
Incremental
Net Cash Flows
Year 1
$61,000
$145,000
Year 2
$67,000
$151,000
Year 3
$78,000
$162,000
Year 4
$41,000
$125,000
Year 5
$83,000
$167,000
Assume cash flows occur uniformly throughout a year except for the initial investment.
If the discount rate is 12%, the net present value of the investment is closest to:
68.
Baldock Inc. is considering the acquisition of a new machine that costs $420,000 and has
a useful life of 5 years with no salvage value. The incremental net operating income and
incremental net cash flows that would be produced by the machine are:
Incremental Net
Operating Income
Incremental
Net Cash Flows
Year 1
$61,000
$145,000
Year 2
$67,000
$151,000
Year 3
$78,000
$162,000
Year 4
$41,000
$125,000
Year 5
$83,000
$167,000
Assume cash flows occur uniformly throughout a year except for the initial investment.
The payback period of this investment is closest to:
69.
Chee Corporation has gathered the following data on a proposed investment project:
Investment required in equipment
$240,000
Annual cash inflows
$50,000
Salvage value
$0
Life of the investment
8 years
Required rate of return
10%
The company uses straight-line depreciation. Assume cash flows occur uniformly
throughout a year except for the initial investment.
The payback period for the investment is closest to:
70.
Chee Corporation has gathered the following data on a proposed investment project:
Investment required in equipment
$240,000
Annual cash inflows
$50,000
Salvage value
$0
Life of the investment
8 years
Required rate of return
10%
The company uses straight-line depreciation. Assume cash flows occur uniformly
throughout a year except for the initial investment.
The simple rate of return on the investment is closest to:
71.
Chee Corporation has gathered the following data on a proposed investment project:
Investment required in equipment
$240,000
Annual cash inflows
$50,000
Salvage value
$0
Life of the investment
8 years
Required rate of return
10%
The company uses straight-line depreciation. Assume cash flows occur uniformly
throughout a year except for the initial investment.
The net present value on this investment is closest to:
11-147
72.
The Halsey Corporation is contemplating the purchase of new equipment that would
require an initial investment of $125,000. The equipment would have a useful life of six
years, with a salvage value of $29,000. This new equipment would be depreciated over its
useful life by the straight-line method. It would replace existing equipment which is fully
depreciated. The existing equipment has a salvage value now of $38,000. The anticipated
annual revenues and expenses associated with the new equipment are:
Revenue (all cash)
$95,000
Operating expenses:
Wages (all cash)
$41,000
Depreciation
$16,000
Other (all cash)
$16,000
Assume cash flows occur uniformly throughout a year except for the initial investment
and the salvage value at the end of the project.
The payback period is closest to:
11-148
73.
The Halsey Corporation is contemplating the purchase of new equipment that would
require an initial investment of $125,000. The equipment would have a useful life of six
years, with a salvage value of $29,000. This new equipment would be depreciated over its
useful life by the straight-line method. It would replace existing equipment which is fully
depreciated. The existing equipment has a salvage value now of $38,000. The anticipated
annual revenues and expenses associated with the new equipment are:
Revenue (all cash)
$95,000
Operating expenses:
Wages (all cash)
$41,000
Depreciation
$16,000
Other (all cash)
$16,000
Assume cash flows occur uniformly throughout a year except for the initial investment
and the salvage value at the end of the project.
For this investment, the simple rate of return to the nearest tenth of a percent is:
11-150
74.
Jimba's, Inc., has purchased a new donut maker. It cost $20,000 and has an estimated life
of 10 years. The following annual donut sales and expenses are projected:
Sales
$30,000
Expenses:
Flour, etc., required in making
donuts
$15,000
Salaries
8,000
Depreciation
2,000
25,000
Net operating income
$5,000
Assume cash flows occur uniformly throughout a year except for the initial investment.
The payback period on the new machine is closest to:
75.
Jimba's, Inc., has purchased a new donut maker. It cost $20,000 and has an estimated life
of 10 years. The following annual donut sales and expenses are projected:
Sales
$30,000
Expenses:
Flour, etc., required in
making donuts
$15,000
Salaries
8,000
Depreciation
2,000
25,000
Net operating income
$5,000
Assume cash flows occur uniformly throughout a year except for the initial investment.
The simple rate of return on the new machine is closest to:
76.
Pro-Mate, Inc. is a producer of athletic equipment. The company is considering the
purchase of a machine to produce baseball bats. The machine will cost $60,000 and have
a 10-year useful life. The following annual revenues and expenses are projected:
Sales
$40,000
Less expenses:
Out-of-pocket production
costs
$15,000
Selling expenses
9,000
Depreciation
6,000
30,000
Net operating income
$10,000
The machine will have no salvage value. Assume cash flows occur uniformly throughout a
year except for the initial investment.
The payback period for the new machine is about:
77.
Pro-Mate, Inc. is a producer of athletic equipment. The company is considering the
purchase of a machine to produce baseball bats. The machine will cost $60,000 and have
a 10-year useful life. The following annual revenues and expenses are projected:
Sales
$40,000
Less expenses:
Out-of-pocket production
costs
$15,000
Selling expenses
9,000
Depreciation
6,000
30,000
Net operating income
$10,000
The machine will have no salvage value. Assume cash flows occur uniformly throughout a
year except for the initial investment.
The simple rate of return would be about:
