82) The management of Elamin Corporation is considering the purchase of a machine that would
cost $365,695 and would have a useful life of 9 years. The machine would have no salvage value.
The machine would reduce labor and other operating costs by $61,000 per year. The internal rate
of return on the investment in the new machine is closest to (Ignore income taxes.):
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) 9%
B) 11%
C) 12%
D) 10%
83) The management of Byrge Corporation is investigating buying a small used aircraft to use in
making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of
8 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of
the investment, excluding the intangible benefits, is −$448,460. To the nearest whole dollar how
large would the annual intangible benefit have to be to make the investment in the aircraft
financially attractive? (Ignore income taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) $44,846
B) $56,058
C) $84,060
D) $448,460
84) Croce, Inc., is investigating an investment in equipment that would have a useful life of 7
years. The company uses a discount rate of 8% in its capital budgeting. The net present value of the
investment, excluding the salvage value, is −$515,967. To the nearest whole dollar how large
would the salvage value of the equipment have to be to make the investment in the equipment
financially attractive? (Ignore income taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) $41,277
B) $885,021
C) $515,967
D) $6,449,588
85) The management of Osborn Corporation is investigating an investment in equipment that
would have a useful life of 8 years. The company uses a discount rate of 12% in its capital
budgeting. The net present value of the investment, excluding the annual cash inflow, is
-$401,414. To the nearest whole dollar how large would the annual cash inflow have to be to make
the investment in the equipment financially attractive? (Ignore income taxes.)
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) $48,170
B) $50,177
C) $80,800
D) $401,414
86) Boe Corporation is investigating buying a small used aircraft for the use of its executives. The
aircraft would have a useful life of 9 years. The company uses a discount rate of 10% in its capital
budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is
−$439,527. Management is having difficulty estimating the salvage value of the aircraft. To the
nearest whole dollar how large would the salvage value of the aircraft have to be to make the
investment in the aircraft financially attractive?
See separate Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s)
using the tables provided.
A) $439,527
B) $43,953
C) $4,395,270
D) $1,036,620
87) Perkins Corporation is considering several investment proposals, as shown below:
Investment Proposal
A
B
C
D
Investment required
$
80,000
$
$
60,000
$
75,000
Present value of future net
cash flows
96,000
$
$
84,000
$
120,000
If the project profitability index is used, the ranking of the projects from most to least profitable
would be:
A) D, B, C, A
B) B, D, C, A
C) B, D, A, C
D) A, C, B, D
Investment
)
)
)
)
of cash
inflows
Net present
value (b)
index (b) ÷
(a)
profitability
index
88) Ryner Corporation is considering three investment projects: S, T, and U. Project S would
require an investment of $20,000, Project T of $69,000, and Project U of $83,000. No other cash
outflows would be involved. The present value of the cash inflows would be $23,200 for Project S,
$77,970 for Project T, and $94,620 for Project U. Rank the projects according to the profitability
index, from most profitable to least profitable. (Ignore income taxes.)
A) U, T, S
B) T, S, U
C) U, S, T
D) S, U, T
89) Trovato 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 $51,840.
The profitability index of the project is closest to (Ignore income taxes.):
A) 0.07
B) 0.08
C) 0.92
D) 1.08
90) A project has an initial investment of $100,000 and a project profitability index of 0.15. The
discount rate is 12%. The net present value of the project is closest to:
A) $15,000
B) $115,000
C) $112,000
D) $12,000
91) The management of Solar Corporation is considering the following three investment projects
(Ignore income taxes.):
Project L
Project M
Project N
Investment required
$
37,000
$
55,000
$
82,000
Present value of cash inflows
38,480
$
62,150
$
90,200
Rank the projects according to the profitability index, from most profitable to least profitable.
A) M, N, L
B) L, N, M
C) N, L, M
D) N, M, L
Project L
Project M
Project N
Present value of cash inflows
$
38,480
$
62,150
$
90,200
Investment required (a)
37,000
55,000
82,000
Net present value (b)
$
$
$
(a)
index
92) A project requires an initial investment of $200,000 and has a project profitability index of
0.250. The present value of the future cash inflows from this investment is:
A) $50,000
B) $25,000
C) $250,000
D) $225,000
93) A company is pondering an investment project that has an internal rate of return which is equal
to the company’s discount rate. The project profitability index of this investment project is:
A) 0.0
B) 0.5
C) 1.0
D) 1.5
94) Information on four investment proposals is given below:
Proposal
Investment
Net Present Value
1
$
8,000
$
3,200
2
$
12,000
$
3,600
3
$
10,000
$
2,500
4
$
4,000
$
2,000
Rank the proposals in terms of preference from highest to lowest according to the project
profitability index:
A) 3, 2, 1, 4
B) 2, 3, 1, 4
C) 2, 1, 3, 4
D) 4, 1, 2, 3
1
4
95) The management of Leitheiser Corporation is considering a project that would require an
initial investment of $51,000. No other cash outflows would be required. The present value of the
cash inflows would be $57,630. The profitability index of the project is closest to (Ignore income
taxes.):
A) 1.13
B) 0.87
C) 0.13
D) 0.12
96) The management of Plotnik Corporation is investigating purchasing equipment that would
increase sales revenues by $269,000 per year and cash operating expenses by $156,000 per year.
The equipment would cost $294,000 and have a 6 year life with no salvage value. The simple rate
of return on the investment is closest to (Ignore income taxes.):
A) 16.7%
B) 38.4%
C) 23.8%
D) 21.8%
97) A company is considering buying a machine that costs $500,000, has a useful life of ten years,
and is depreciated over its useful life by the straight-line method. The salvage value of the machine
at the end of ten years will be $40,000. This machine will replace an old machine that is fully
depreciated; the old machine has a salvage value of $75,000 now. If the simple rate of return of this
investment is 12.7%, then the anticipated annual incremental net operating income from this
machine for each of the next ten years is (Ignore income taxes.):
A) $100,000
B) $63,825
C) $53,975
D) $46,380
98) The management of Ro Corporation is investigating automating a process. Old equipment,
with a current salvage value of $11,000, would be replaced by a new machine. The new machine
would be purchased for $243,000 and would have a 9 year useful life and no salvage value. By
automating the process, the company would save $69,000 per year in cash operating costs. The
simple rate of return on the investment is closest to (Ignore income taxes.):
A) 18.1%
B) 11.1%
C) 28.4%
D) 17.3%
99) An expansion at Fey, Inc., would increase sales revenues by $150,000 per year and cash
operating expenses by $47,000 per year. The initial investment would be for equipment that would
cost $328,000 and have an 8 year life with no salvage value. The annual depreciation on the
equipment would be $41,000. The simple rate of return on the investment is closest to (Ignore
income taxes.):
A) 41.3%
B) 18.9%
C) 12.5%
D) 31.4%
100) Crowl Corporation is investigating automating a process by purchasing a machine for
$792,000 that would have a 9 year useful life and no salvage value. By automating the process, the
company would save $132,000 per year in cash operating costs. The new machine would replace
some old equipment that would be sold for scrap now, yielding $21,000. The annual depreciation
on the new machine would be $88,000. The simple rate of return on the investment is closest to
(Ignore income taxes.):
A) 11.1%
B) 16.7%
C) 5.7%
D) 5.1%
101) Denny Corporation is considering replacing a technologically obsolete machine with a new
state-of-the-art numerically controlled machine. The new machine would cost $450,000 and
would have a ten-year useful life. Unfortunately, the new machine would have no salvage value.
The new machine would cost $20,000 per year to operate and maintain, but would save $100,000
per year in labor and other costs. The old machine can be sold now for scrap for $50,000. The
simple rate of return on the new machine is closest to (Ignore income taxes.):
A) 8.75%
B) 20.00%
C) 7.78%
D) 22.22%
102) Slomkowski Corporation is contemplating purchasing equipment that would increase sales
revenues by $298,000 per year and cash operating expenses by $143,000 per year. The equipment
would cost $712,000 and have an 8 year life with no salvage value. The annual depreciation would
be $89,000. The simple rate of return on the investment is closest to (Ignore income taxes.):
A) 9.3%
B) 21.8%
C) 22.1%
D) 12.5%