35. (Ignore income taxes in this problem.) Sam Weller is thinking of investing $70,000 to start
a bookstore. Sam plans to withdraw $15,000 from the business at the end of each year for the
next five years. At the end of the fifth year, Sam plans to sell the business for $110,000 cash. At a
12% discount rate, what is the net present value of the investment?
36. (Ignore income taxes in this problem.) The following data pertain to an investment
proposal:
The net present value of the proposed investment is:
37. (Ignore income taxes in this problem) The management of Serpas Corporation is
considering the purchase of a machine that would cost $180,000, would last for 5 years, and
would have no salvage value. The machine would reduce labor and other costs by $46,000 per
year. The company requires a minimum pretax return of 13% on all investment projects. The net
present value of the proposed project is closest to:
38. (Ignore income taxes in this problem.) The Gage Company purchased a machine which
will be depreciated by the straight-line method over its estimated 6 year life. The machine will
have no salvage value. It will generate cash inflows of $7,000 each year over the next 6 years.
Gage Company’s required rate of return is 14%. If the net present value of this investment is
$12,016, the purchase price of the machine was:
39. (Ignore income taxes in this problem.) Stutz Company purchased a machine with an
estimated useful life of seven years. The machine will generate cash inflows of $8,000 each year
over the next seven years. If the machine has no salvage value at the end of seven years, if
Stutz’s discount rate is 12%, and if the net present value of this investment is $15,000, then the
purchase price of the machine was:
40. (Ignore income taxes in this problem.) Mcclam, Inc., is considering the purchase of a
machine that would cost $100,000 and would last for 9 years. At the end of 9 years, the machine
would have a salvage value of $23,000. The machine would reduce labor and other costs by
$19,000 per year. Additional working capital of $2,000 would be needed immediately. All of this
working capital would be recovered at the end of the life of the machine. The company requires a
minimum pretax return of 13% on all investment projects. The net present value of the proposed
project is closest to:
41. (Ignore income taxes in this problem.) Charley has a typing service. He estimates that a
new computer will result in increased cash inflow $1,600 in Year 1, $2,000 in Year 2 and $3,000 in
Year 3. If Charley’s required rate of return is 12%, the most that Charley would be willing to pay
for the new computer would be:
42. (Ignore income taxes in this problem.) A piece of equipment has a cost of $20,000. The
equipment will provide cost savings of $3,500 each year for ten years, after which time it will
have a salvage value of $2,500. If the company’s discount rate is 12%, the equipment’s net
present value is:
43. (Ignore income taxes in this problem.) The following data pertain to an investment in
equipment:
At the completion of the project, the working capital will be released for use elsewhere. Compute
the net present value of the project, using a discount rate of 10%:
44. (Ignore income taxes in this problem.) The following data pertain to an investment
proposal:
The working capital would be released for use elsewhere when the project is completed. What is
the net present value of the project, using a discount rate of 8 percent?
45. (Ignore income taxes in this problem.) The Valentine Company has decided to buy a
machine costing $14,750. Estimated cash savings from using the new machine amount to $4,500
per year. The machine will have no salvage value at the end of its useful life of five years. If
Valentine’s required rate of return is 10%, the machine’s internal rate of return is closest to:
46. (Ignore income taxes in this problem.) If an investment of $14,760 now will yield $18,000
at the end of one year, then the internal rate of return for this investment to the nearest whole
percentage is:
47. (Ignore income taxes in this problem.) Duhl Long-Haul, Inc., is considering the purchase
of a tractor-trailer that would cost $126,175, would have a useful life of 5 years, and would have
no salvage value. The tractor-trailer would be used in the company’s hauling business, resulting
in additional net cash inflows of $35,000 per year. The internal rate of return on the investment in
the tractor-trailer is closest to:
48. (Ignore income taxes in this problem.) Mongon Roofing is considering the purchase of a
crane that would cost $40,224, would have a useful life of 5 years, and would have no salvage
value. The use of the crane would result in labor savings of $12,000 per year. The internal rate of
return on the investment in the crane is closest to:
49. (Ignore income taxes in this problem) The management of Mazor Corporation is
considering the purchase of a machine that would cost $144,144 and would have a useful life of 5
years. The machine would have no salvage value. The machine would reduce labor and other
operating costs by $39,000 per year. The internal rate of return on the investment in the new
machine is closest to:
50. (Ignore income taxes in this problem) Lett Corporation is investigating buying a small
used aircraft for the use of its executives. The aircraft would have a useful life of 7 years. The
company uses a discount rate of 15% in its capital budgeting. The net present value of the
investment, excluding the salvage value of the aircraft, is -$578,739. 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?
51. (Ignore income taxes in this problem) The management of Hirsh Corporation is
investigating an investment in equipment that would have a useful life of 9 years. The company
uses a discount rate of 13% in its capital budgeting. The net present value of the investment,
excluding the annual cash inflow, is -$666,493. To the nearest whole dollar how large would the
annual cash inflow have to be to make the investment in the equipment financially attractive?
52. (Ignore income taxes in this problem) The management of Londo 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 6 years. The company uses a discount
rate of 15% in its capital budgeting. The net present value of the investment, excluding the
intangible benefits, is -$474,060. To the nearest whole dollar how large would the annual
intangible benefit have to be to make the investment in the aircraft financially attractive?
53. (Ignore income taxes in this problem.) Cottrell, Inc., is investigating an investment in
equipment that would have a useful life of 9 years. The company uses a discount rate of 15% in
its capital budgeting. The net present value of the investment, excluding the salvage value, is –
$230,392. 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?
54. (Ignore income taxes in this problem.) Girman Corporation is considering three
investment projects: K, L, and M. Project K would require an investment of $27,000, Project L of
$59,000, and Project M of $88,000. No other cash outflows would be involved. The present value
of the cash inflows would be $31,860 for Project K, $66,080 for Project L, and $95,040 for Project
M. Rank the projects according to the profitability index, from most profitable to least profitable.