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.
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:
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.
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:
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:
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: