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104. Below is a table for the present value of $1 at Compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, what would be the internal rate of return of an investment that required an investment of $189,550, and would generate an
annual cash inflow of $50,000 for the next 5 years?
105. Below is a table for the present value of $1 at Compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, what would be the internal rate of return of an investment of $294,840 that would generate an annual cash inflow of $70,000
for the next 5 years?
106. The expected average rate of return for a proposed investment of $500,000 in a fixed asset, with a useful
life of four years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for
the 4 years, is:
107. Which of the following is not an advantage of the average rate of return method?
108. Which of the following is an advantage of the cash payback method?
109. An anticipated purchase of equipment for $600,000, with a useful life of 8 years and no residual value, is
expected to yield the following annual net incomes and net cash flows:
Year
Net Income
Net Cash Flow
1
$60,000
$120,000
2
50,000
110,000
3
50,000
110,000
4
40,000
100,000
5
40,000
80,000
6
40,000
80,000
7
40,000
60,000
8
40,000
60,000
What is the cash payback period?
110. Using the following partial table of present value of $1 at compound interest, determine the present value
of $30,000 to be received three years hence, with earnings at the rate of 12% a year:
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
111. The rate of earnings is 10% and the cash to be received in two year is $10,000. Determine the present value
amount, using the following partial table of present value of $1 at compound interest:
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
112. Heather Company is considering the acquisition of a machine that costs $432,000. The machine is
expected to have a useful life of 6 years, a negligible residual value, an annual cash flow of $120,000, and
annual operating income of $83,721. What is the estimated cash payback period for the machine?
113. The expected average rate of return for a proposed investment of $4,800,000 in a fixed asset, using straight
line depreciation, with a useful life of 20 years, no residual value, and an expected total net income of
$10,560,000 is:
114. The management of Zesty Corporation is considering the purchase of a new machine costing $400,000.
The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1
through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information,
use the following data in determining the acceptability in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$100,000
$180,000
2
40,000
120,000
3
20,000
100,000
4
10,000
90,000
5
10,000
90,000
The cash payback period for this investment is:
115. The management of Indiana Corporation is considering the purchase of a new machine costing $400,000.
The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1
through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information,
use the following data in determining the acceptability in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$100,000
$180,000
2
60,000
120,000
3
30,000
100,000
4
10,000
90,000
5
10,000
90,000
The average rate of return for this investment is:
116. The management of Idaho Corporation is considering the purchase of a new machine costing $430,000.
The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1
through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information,
use the following data in determining the acceptability in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$100,000
$180,000
2
40,000
120,000
3
20,000
100,000
4
10,000
90,000
5
10,000
90,000
The net present value for this investment is:
117. The management of Dakota Corporation is considering the purchase of a new machine costing $420,000.
The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1
through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information,
use the following data in determining the acceptability in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$100,000
$180,000
2
40,000
120,000
3
20,000
100,000
4
10,000
90,000
5
10,000
90,000
The present value index for this investment is:
118. The management of Charlton Corporation is considering the purchase of a new machine costing $380,000.
The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5
years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability
in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$20,000
$95,000
2
20,000
95,000
3
20,000
95,000
4
20,000
95,000
5
20,000
95,000
The cash payback period for this investment is:
119. The management of River Corporation is considering the purchase of a new machine costing $380,000.
The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5
years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability
in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$20,000
$95,000
2
20,000
95,000
3
20,000
95,000
4
20,000
95,000
5
20,000
95,000
The cash payback period for this investment is:
120. The management of River Corporation is considering the purchase of a new machine costing $380,000.
The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5
years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability
in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$20,000
$95,000
2
20,000
95,000
3
20,000
95,000
4
20,000
95,000
5
20,000
95,000
The average rate of return for this investment is:
121. The management of River Corporation is considering the purchase of a new machine costing $380,000.
The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5
years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability
in this situation:
Year
Income from
Operations
Net Cash
Flow
1
$20,000
$95,000
2
20,000
95,000
3
20,000
95,000
4
20,000
95,000
5
20,000
95,000
The net present value for this investment is:
122. Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, what would be the present value of $15,000 (rounded to the nearest dollar) to be received at the end of each of the next two
years, assuming an earnings rate of 6%?
123. Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, what would be the present value of $8,000 (rounded to the nearest dollar) to be received one year from today, assuming an
earnings rate of 12%?
124. Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, what is the present value of $6,000 (rounded to the nearest dollar) to be received at the end of each of the next 4 years,
assuming an earnings rate of 10%?
125. Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would
be the present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%)?
126. The production department is proposing the purchase of an automatic insertion machine. They have
identified 3 machines and have asked the accountant to analyze them to determine the best average rate of
return.
Machine A
Machine B
Machine C
Estimated Average Income
$40,000
$50,000
$75,000
Average Investment
$300,000
$250,000
$500,000
127. The production department is proposing the purchase of an automatic insertion machine. They have
identified 3 machines and have asked the accountant to analyze them to determine the best cash payback.
Machine A
Machine B
Machine C
Annual Cash Flow
$40,000
$50,000
$75,000
Average Investment
$300,000
$250,000
$500,000
128. Which of the following is true of the cash payback period?
129. The production department is proposing the purchase of an automatic insertion machine. They have
identified 3 machines and have asked the accountant to analyze them to determine which of the proposals (if
any) meet or exceed the company’s policy of a minimum desired rate of return of 10% using the net present
value method. Each of the assets has a estimated useful life of 10 years.
Machine A
Machine B
Machine C
Present Value of Future Cash Flows computed using 10% rate of
return
$305,000
$295,000
$300,000
Amount of initial investment
$300,000
$300,000
$300,000
130. The production department is proposing the purchase of an automatic insertion machine. They have
identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of
return?
Machine A
Machine B
Machine C
Annual net cash flows
$50,000
$40,000
$75,000
Average investment
$250,000
$300,000
$500,000
131. All of the following qualitative considerations may impact upon capital investment analysis except:
132. All of the following qualitative considerations may impact upon capital investment analysis except:
133. Which of the following provisions of the Internal Revenue Code can be used to reduce the amount of the
income tax expense arising from capital investment projects?
134. Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has
a useful life of nine years. What is one widely used method that makes the proposals comparable?
135. Periods in time that experience increasing price levels are known as periods of:
136. Which of the following is not considered as a complicating factor in capital investment decisions?
137. Which of the following would not be considered a good managerial tool in making a decision for
determining a capital investment?
138. All of the following are factors that may complicate capital investment analysis except:
139. The process by which management allocates available investment funds among competing investment
proposals is called:
140. In capital rationing, an initial screening of alternative proposals is usually performed by establishing
minimum standards. Which of the following evaluation method(s) are often used?
141. In capital rationing, alternative proposals that survive initial and secondary screening are normally
evaluated in terms of:
142. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be
invested is $150,000. The present value of the future cash flows is $143,000. Should the company invest in
this project?
143. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be
invested is $150,000. The present value of the future cash flows generated by the project is $145,000. Should
they invest in this project?
144. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be
invested is $170,000. The present value of the future cash flows is $185,000. The company’s desired rate of
return used in the present value calculations was 10%. Which of the following statements is true?
145. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be
invested is $100,000. The present value of the future cash flows at the company’s desired rate of return is
$105,000. The IRR on the project is 12%. Which of the following statements is true?
146. A company is contemplating investing in a new piece of manufacturing machinery. The amount to be
invested is $100,000. The present value of the future cash flows at the company’s desired rate of return is
$100,000. The IRR on the project is 12%. Which of the following statements is true?
147. Determine the average rate of return for a project that is estimated to yield total income of $400,000 over
four years, cost $720,000, and has a $70,000 residual value. Round answers in percentage to one decimal place.
148. Determine the average rate of return for a project that is estimated to yield total income of $250,000 over
four years, cost $480,000, and has a $20,000 residual value.
149. An 8-year project is estimated to cost $400,000 and have no residual value. If the straight-line depreciation
method is used and the average rate of return is 5%, determine the estimated annual net income.
150. An 6-year project is estimated to cost $350,000 and have no residual value. If the straight-line depreciation
method is used and the average rate of return is 12%, determine the estimated annual net income.
151. A project has estimated annual net cash flows of $50,000. It is estimated to cost $180,000. Determine the
cash payback period.
152. A project has estimated annual net cash flows of $90,000. It is estimated to cost $324,000. Determine the
cash payback period.
153. A project has estimated annual cash flows of $95,000 for four years and is estimated to cost $260,000.
Assume a minimum acceptable rate of return of 10%. Using the following tables determine the (a) net present
value of the project and (b) the present value index, rounded to two decimal places.
Below is a table for the present value of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
.890
.826
.797
3
.840
.751
.712
4
.792
.683
.636
5
.747
.621
.567
Below is a table for the present value of an annuity of $1 at compound interest.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
