95. If the new equipment is purchased, the present value of all cash flows that occur now is:
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96. If the new equipment is purchased, the present value of the annual cash operating costs
associated with this alternative is:
(Ignore income taxes in this problem.) The Finney Company is reviewing the possibility of
remodeling one of its showrooms and buying some new equipment to improve sales operations.
The remodeling would cost $120,000 now and the useful life of the project is 10 years. Additional
working capital needed immediately for this project would be $30,000; the working capital would
be released for use elsewhere at the end of the 10-year period. The equipment and other
materials used in the project would have a salvage value of $10,000 in 10 years. Finney’s
discount rate is 16%.
97. The immediate cash outflow required for this project would be:
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98. What would the annual net cash inflows from this project have to be in order to justify
investing in remodeling?
(Ignore income taxes in this problem.) Gillaspie, Inc., is considering the purchase of a
machine that would cost $300,000 and would last for 5 years. At the end of 5 years, the machine
would have a salvage value of $51,000. The machine would reduce labor and other costs by
$86,000 per year. Additional working capital of $10,000 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.
99. The combined present value of the working capital needed at the beginning of the project
and the working capital released at the end of the project is closest to:
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100. The net present value of the proposed project is closest to:
(Ignore income taxes in this problem.) Rushforth Manufacturing has $90,000 to invest in
either Project A or Project B. The following data are available on these projects:
Both projects will have a useful life of 6 years. At the end of 6 years, the working capital
investment will be released for use elsewhere. Rushforth’s required rate of return is 14%.
101. The net present value of Project A is:
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102. The net present value of Project B is:
(Ignore income taxes in this problem.) Meharg Corporation is considering the purchase of
a machine that would cost $120,000 and would last for 5 years. At the end of 5 years, the
machine would have a salvage value of $25,000. By reducing labor and other operating costs, the
machine would provide annual cost savings of $30,000. The company requires a minimum pretax
return of 10% on all investment projects.
103. The present value of the annual cost savings of $30,000 is closest to:
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104. The net present value of the proposed project is closest to:
(Ignore income taxes in this problem.) Trybus Corporation uses a discount rate of 16% in
its capital budgeting. Partial analysis of an investment in automated equipment with a useful life
of 5 years has thus far yielded a net present value of -$233,764. This analysis did not include any
estimates of the intangible benefits of automating this process nor did it include any estimate of
the salvage value of the equipment.
105. Ignoring any salvage value, to the nearest whole dollar how large would the additional
cash flow per year from the intangible benefits have to be to make the investment in the
automated equipment financially attractive?
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106. Ignoring any cash flows from intangible benefits, to the nearest whole dollar how large
would the salvage value of the automated equipment have to be to make the investment in the
automated equipment financially attractive?
(Ignore income taxes in this problem.) The management of Gimenez Corporation is
investigating an investment in equipment that would have a useful life of 7 years. The company
uses a discount rate of 17% in its capital budgeting. Good estimates are available for the initial
investment and the annual cash operating outflows, but not for the annual cash inflows and the
salvage value of the equipment. The net present value of the initial investment and the annual
cash outflows is -$274,265.
107. Ignoring any salvage value, to the nearest whole dollar how large would the annual cash
inflow have to be to make the investment in the equipment financially attractive?
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108. Ignoring the cash inflows, 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 in this problem.) Burchell 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 initial
investment and the annual operating cash cost is -$594,381. Management is having difficulty
estimating the annual benefit of having the aircraft and estimating the salvage value of the
aircraft.
109. Ignoring the annual benefit, 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?
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110. Ignoring any salvage value, to the nearest whole dollar how large would the annual
benefit have to be to make the investment in the aircraft financially attractive?
(Ignore income taxes in this problem.) The management of Pattee Corporation is
considering three investment projects-M, N, and O. Project M would require an investment of
$25,000, Project N of $67,000, and Project O of $70,000. The present value of the cash inflows
would be $28,750 for Project M, $73,700 for Project N, and $79,100 for Project O.
111. The profitability index of investment project N is closest to:
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112. Rank the projects according to the profitability index, from most profitable to least
profitable.
(Ignore income taxes in this problem.) Altro Corporation is considering the following three
investment projects:
113. The profitability index of investment project S is closest to:
114. Rank the projects according to the profitability index, from most profitable to least
profitable.