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55. Logan Company is considering two projects, A and B. The following information has been
gathered on these projects:
Based on this information, which of the following statements is(are) true?
I. Project A has the highest ranking according to the project profitability index criterion.
II. Project B has the highest ranking according to the net present value criterion.
56. (Ignore income taxes in this problem.) The management of Dewitz Corporation is
considering a project that would require an initial investment of $65,000. No other cash outflows
would be required. The present value of the cash inflows would be $72,800. The profitability
index of the project is closest to:
57. (Ignore income taxes in this problem.) The management of Dittrick Corporation is
considering the following three investment projects:
Rank the projects according to the profitability index, from most profitable to least profitable.
58. A project requires an initial investment of $60,000 and has a project profitability index of
0.329. The present value of the future cash inflows from this investment is:
59. Blanding Company is considering several investment proposals, as shown below:
Using the project profitability index, the ranking would be:
60. (Ignore income taxes in this problem.) Deibel Corporation is considering a project that
would require an investment of $59,000. No other cash outflows would be involved. The present
value of the cash inflows would be $66,080. The profitability index of the project is closest to:
61. Perkins Company is considering several investment proposals, as shown below:
Rank the proposals in terms of preference using the project profitability index:
62. (Ignore income taxes in this problem.) The Jackson Company has invested in a machine
that cost $70,000, that has a useful life of seven years, and that has no salvage value at the end
of its useful life. The machine is being depreciated by the straight-line method, based on its
useful life. It will have a payback period of four years. Given these data, the simple rate of return
on the machine is closest to:
63. (Ignore income taxes in this problem.) Czaplinski Corporation is considering a project that
would require an investment of $323,000 and would last for 7 years. The incremental annual
revenues and expenses generated by the project during those 7 years would be as follows:
The scrap value of the project's assets at the end of the project would be $22,000. The payback
period of the project is closest to:
64. (Ignore income taxes in this problem.) Buy-Rite Pharmacy has purchased a small auto for
delivering prescriptions. The auto was purchased for $9,000 and will have a 6-year useful life and
a $3,000 salvage value. Delivering prescriptions (which the pharmacy has never done before)
should increase gross revenues by at least $5,000 per year. The cost of these prescriptions to the
pharmacy will be about $2,000 per year. The pharmacy depreciates all assets using the straight-
line method. The payback period for the auto is:
65. (Ignore income taxes in this problem.) The Higgins Company has just purchased a piece
of equipment at a cost of $120,000. This equipment will reduce operating costs by $40,000 each
year for the next eight years. This equipment replaces old equipment which was sold for $8,000
cash. The new equipment has a payback period of:
66. (Ignore income taxes in this problem.) The management of Rusell Corporation is
considering a project that would require an investment of $282,000 and would last for 6 years.
The annual net operating income from the project would be $107,000, which includes
depreciation of $43,000. The scrap value of the project's assets at the end of the project would
be $24,000. The payback period of the project is closest to:
67. (Ignore income taxes in this problem.) Rogers Company is studying a project that would
have a ten-year life and would require an $800,000 investment in equipment which has no
salvage value. The project would provide net operating income each year as follows for the life of
the project:
The company's required rate of return is 8%. What is the payback period for this project?
68. (Ignore income taxes in this problem.) The Jason Company is considering the purchase of
a machine that will increase revenues by $32,000 each year. Cash outflows for operating this
machine will be $6,000 each year. The cost of the machine is $65,000. It is expected to have a
useful life of five years with no salvage value. For this machine, the simple rate of return is:
69. (Ignore income taxes in this problem.) Blaine Corporation is considering replacing a
technologically obsolete machine with a new state-of-the-art numerically controlled machine.
The new machine would cost $180,000 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 $48,000 per year in labor and other costs. The old machine
can be sold now for scrap for $20,000. What is the simple rate of return on the new machine
(round off your answer to the nearest one-hundredth of a percent)?
70. (Ignore income taxes in this problem.) The management of Burney Corporation is
investigating purchasing equipment that would increase sales revenues by $74,000 per year and
cash operating expenses by $32,000 per year. The equipment would cost $115,000 and have a 5
year life with no salvage value. The simple rate of return on the investment is closest to:
71. (Ignore income taxes in this problem.) Tu Corporation is investigating automating a
process by purchasing a machine for $423,000 that would have a 9 year useful life and no salvage
value. By automating the process, the company would save $112,000 per year in cash operating
costs. The new machine would replace some old equipment that would be sold for scrap now,
yielding $27,000. The annual depreciation on the new machine would be $47,000. The simple rate
of return on the investment is closest to:
72. (Ignore income taxes in this problem.) Hartong Corporation is contemplating purchasing
equipment that would increase sales revenues by $185,000 per year and cash operating
expenses by $89,000 per year. The equipment would cost $416,000 and have a 8 year life with no
salvage value. The annual depreciation would be $52,000. The simple rate of return on the
investment is closest to:
73. (Ignore income taxes in this problem.) An expansion at Fenstermacher, Inc., would
increase sales revenues by $315,000 per year and cash operating expenses by $186,000 per year.
The initial investment would be for equipment that would cost $405,000 and have a 5 year life
with no salvage value. The annual depreciation on the equipment would be $81,000. The simple
rate of return on the investment is closest to:
8-60
74. (Ignore income taxes in this problem.) The management of Rouleau Corporation is
investigating automating a process. Old equipment, with a current salvage value of $10,000,
would be replaced by a new machine. The new machine would be purchased for $240,000 and
would have a 6 year useful life and no salvage value. By automating the process, the company
would save $64,000 per year in cash operating costs. The simple rate of return on the investment
is closest to:
(Ignore income taxes in this problem.) Shields Company has gathered the following data
on a proposed investment project:
