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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:

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