103) Vandezande Inc. is considering the acquisition of a new machine that costs $370,000 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 (Ignore income taxes.):
Incremental Net
Operating Income
Incremental Net Cash
Flows
Year 1
$
54,000
$
128,000
Year 2
$
31,000
$
105,000
Year 3
$
52,000
$
126,000
Year 4
$
49,000
$
123,000
Year 5
$
48,000
$
122,000
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Assume cash flows occur uniformly throughout a year except for the initial investment.
If the discount rate is 10%, the net present value of the investment is closest to:
A) $370,000
B) $457,479
C) $234,000
D) $87,479
104) Vandezande Inc. is considering the acquisition of a new machine that costs $370,000 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 (Ignore income taxes.):
Incremental Net
Operating Income
Incremental Net Cash
Flows
Year 1
$
54,000
$
128,000
Year 2
$
31,000
$
105,000
Year 3
$
52,000
$
126,000
Year 4
$
49,000
$
123,000
Year 5
$
48,000
$
122,000
Assume cash flows occur uniformly throughout a year except for the initial investment.
The payback period of this investment is closest to:
A) 2.9 years
B) 4.9 years
C) 3.1 years
D) 5.0 years
$
$
$
$
Joetz Corporation has gathered the following data on a proposed investment project (Ignore
income taxes.):
Investment required in equipment
$
30,000
Annual cash inflows
$
6,000
per year
Salvage value of equipment
$
0
Life of the investment
15
years
Required rate of return
10
%
The company uses straight-line depreciation on all equipment. Assume cash flows occur
uniformly throughout a year except for the initial investment.
105) The payback period for the investment is:
A) 5 years
B) 15 years
C) 2 years
D) 7.143 years
106) The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:
A) 20.0%
B) 13.3%
C) 18.0%
D) 10.0%
107) The net present value of the investment is:
A) $15,636
B) $24,000
C) $45,636
D) $60,000
108) The internal rate of return of the investment is closest to:
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) 16%
B) 18%
C) 20%
D) 22%
Oriental Corporation has gathered the following data on a proposed investment project:
Investment in depreciable equipment
$
200,000
Annual net cash flows
$
50,000
Life of the equipment
10
years
Salvage value
$
0
Discount rate
10
%
The company uses straight-line depreciation on all equipment. Assume cash flows occur
uniformly throughout a year except for the initial investment.
109) The payback period for the investment would be:
A) 2.41 years
B) 0.25 years
C) 10 years
D) 4 years
110) The simple rate of return on the investment would be:
A) 10%
B) 35%
C) 15%
D) 25%
111) The net present value of this investment would be:
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) $(14,350)
B) $107,250
C) $77,200
D) $200,000
112) Fast Food, Inc., has purchased a new donut maker. It cost $16,000 and has an estimated life of
10 years. The following annual donut sales and expenses are projected (Ignore income taxes.):
Sales
$
22,000
Expenses:
Flour, etc., required in making donuts
$
10,000
Salaries
$
6,000
Depreciation
$
1,600
17,600
Net operating income
$
4,400
Assume cash flows occur uniformly throughout a year except for the initial investment.
The payback period on the new machine is closest to:
A) 5 years
B) 2.7 years
C) 3.6 years
D) 1.4 years
Sales
$
22,000
Expenses:
Flour, etc., required in making donuts
$
10,000
Salaries
$
6,000
16,000
Annual net cash flow
$
6,000
113) Fast Food, Inc., has purchased a new donut maker. It cost $16,000 and has an estimated life of
10 years. The following annual donut sales and expenses are projected (Ignore income taxes.):
Sales
$
22,000
Expenses:
Flour, etc., required in making donuts
$
10,000
Salaries
$
6,000
Depreciation
$
1,600
17,600
Net operating income
$
4,400
Assume cash flows occur uniformly throughout a year except for the initial investment.
The simple rate of return for the new machine is closest to:
A) 20%
B) 37.5%
C) 27.5%
D) 80.0%
114) Purvell Corporation has just acquired a new machine with the following characteristics
(Ignore income taxes.):
Cost of the equipment
$
50,000
Annual cash savings
$
15,000
Life of the machine
8
years
The company uses straight-line depreciation and a $5,000 salvage value. Assume cash flows occur
uniformly throughout a year except for the initial investment and the salvage at the end of the
project.
The payback period is closest to:
A) 3.33 years
B) 3.0 years
C) 8.0 years
D) 2.9 years
115) Purvell Corporation has just acquired a new machine with the following characteristics
(Ignore income taxes.):
Cost of the equipment
$
50,000
Annual cash savings
$
15,000
Life of the machine
8
years
The company uses straight-line depreciation and a $5,000 salvage value. Assume cash flows occur
uniformly throughout a year except for the initial investment and the salvage at the end of the
project.
The simple rate of return would be closest to:
A) 30.0%
B) 17.5%
C) 18.75%
D) 12.5%
Annual incremental cost savings
$
Annual depreciation ($50,000 – $5,000)/8
Annual incremental net operating income
$
Morrel University has a small shuttle bus that is in poor mechanical condition. The bus can be
either overhauled now or replaced with a new shuttle bus. The following data have been gathered
concerning these two alternatives (Ignore income taxes.):
Present Bus
New Bus
Purchase cost new
$
32,000
$
40,000
Remaining net book value
$
21,000
–
Major repair needed now
$
9,000
–
Annual cash operating costs
$
12,000
$
8,000
Salvage value now
$
10,000
–
Trade-in value in seven years
$
2,000
$
5,000
The University could continue to use the present bus for the next seven years. Whether the present
bus is used or a new bus is purchased, the bus would be traded in for another bus at the end of seven
years. The University uses a discount rate of 12% and the total cost approach to net present value
analysis.
116) If the new bus is purchased, the present value of the annual cash operating costs associated
with this alternative is closest to:
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) $(54,800)
B) $(36,500)
C) $(16,200)
D) $(42,800)
117) If the present bus is repaired, the present value of the annual cash operating costs associated
with this alternative is closest to:
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) $(36,500)
B) $(16,200)
C) $(47,200)
D) $(54,800)
118) If the present bus is repaired, the present value of the salvage received on sale of the bus seven
years from now is closest to:
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) $(2,260)
B) $2,260
C) $904
D) $(904)
119) Westland College has a telephone system that is in poor condition. The system either can be
overhauled or replaced with a new system. The following data have been gathered concerning
these two alternatives (Ignore income taxes.):
Present System
Proposed New
System
Purchase cost new
$
250,000
$
300,000
Accumulated depreciation
$
240,000
–
Overhaul costs needed now
$
230,000
–
Annual cash operating costs
$
180,000
$
170,000
Salvage value at the end of 8 years
$
152,000
$
165,000
Working capital required
–
$
200,000
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Westland College uses a 10% discount rate and the total cost approach to capital budgeting
analysis. Both alternatives are expected to have a useful life of eight years. The working capital
would be released for use elsewhere when the project is completed.
The net present value of the alternative of overhauling the present system is closest to:
A) $(1,279,316)
B) $(1,119,316)
C) $801,284
D) $(1,194,036)
120) Westland College has a telephone system that is in poor condition. The system either can be
overhauled or replaced with a new system. The following data have been gathered concerning
these two alternatives (Ignore income taxes.):
Present System
Proposed New
System
Purchase cost new
$
250,000
$
300,000
Accumulated depreciation
$
240,000
–
Overhaul costs needed now
$
230,000
–
Annual cash operating costs
$
180,000
$
170,000
Salvage value at the end of 8 years
$
152,000
$
165,000
Working capital required
–
$
200,000
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Westland College uses a 10% discount rate and the total cost approach to capital budgeting
analysis. Both alternatives are expected to have a useful life of eight years. The working capital
would be released for use elsewhere when the project is completed.
The net present value of the alternative of purchasing the new system is closest to:
A) $(1,076,495)
B) $(1,236,495)
C) $(1,169,895)
D) $(969,895)
121) Lambert Manufacturing has $100,000 to invest in either Project A or Project B. The
following data are available on these projects (Ignore income taxes.):
Project A
Project B
Cost of equipment needed now
$
100,000
$
60,000
Working capital investment needed now
–
$
40,000
Annual cash operating inflows
$
40,000
$
35,000
Salvage value of equipment in 6 years
$
10,000
–
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
Both projects will have a useful life of 6 years and the total cost approach to net present value
analysis. At the end of 6 years, the working capital investment will be released for use elsewhere.
Lambert’s required rate of return is 14%.
The net present value of Project A is:
A) $51,000
B) $60,120
C) $55,560
D) $94,450