51. The break-even time (BET) method is a variation of the:
A. Payback method.
B. Internal rate of return method.
C. Accounting rate of return method.
D. Net present value method.
E. Present value method.
52. If a manager were concerned with the time value of money, from which two capital budgeting methods should the manager choose?
A. IRR or Payback.
B. BET or IRR.
C. BET or Payback.
D. NPV or ARR.
E. NPV or Payback.
53. A company wishes to buy new equipment for $85,000. The equipment is expected to generate an additional $35,000 in cash inflows for four years. All cash flows occur at year-end. A bank will make an $85,000 loan to the company at a 10% interest rate so that the company can purchase the equipment. Use the table below to determine break-even time for this equipment.
Year
|
Present Value of 1 at 10%
|
0
|
1.0000
|
1
|
0.9091
|
2
|
0.8264
|
3
|
0.7513
|
4
|
0.6830
|
A. Break-even time is longer than 4 years.
B. Break-even time is between 3 and 4 years.
C. Break-even time is between 2 and 3 years.
D. Break-even time is between 1 and 2 years.
E. This project will never break-even.
54. A company wishes to buy new equipment for $85,000. The equipment is expected to generate an additional $35,000 in cash inflows for four years. All cash flows occur at year-end. A bank will make an $85,000 loan to the company at a 10% interest rate so that the company can purchase the equipment. Use the table below to determine the present value of the future cash flows and the net present value of the investment.
Year
|
Present Value of 1 at 10%
|
0
|
1.0000
|
1
|
0.9091
|
2
|
0.8264
|
3
|
0.7513
|
4
|
0.6830
|
A. $140,000 and $55,000 respectively
B. $110,942 and $25,942 respectively
C. $145,942 and $60,942 respectively
D. $145,942 and $129,432 respectively
E. $110,942 and $52,888 respectively
55. A company wishes to buy new equipment for $35,000. The equipment is expected to generate an additional $9,600 in cash inflows for seven years. All cash flows occur at year-end. A bank will make an $35,000 loan to the company at a 10% interest rate so that the company can purchase the equipment. Use the table below to determine break-even time for this equipment.
Year
|
Present Value of 1 at 10%
|
0
|
1.0000
|
1
|
0.9091
|
2
|
0.8264
|
3
|
0.7513
|
4
|
0.6830
|
5
|
0.6209
|
6
|
0.5645
|
7
|
0.5132
|
A. Break-even time is between three and four years.
B. Break-even time is between four and five years.
C. Break-even time is between five and six years.
D. Break-even time is between six and seven years.
E. This project will never break-even.
56. A company wishes to buy new equipment for $9,000. The equipment is expected to generate an additional $2,800 in cash inflows for six years. All cash flows occur at year-end. A bank will make an $9,000 loan to the company at a 10% interest rate so that the company can purchase the equipment. Use the table below to determine break-even time for this equipment:
Year
|
Present Value of 1 at 10%
|
0
|
1.0000
|
1
|
0.9091
|
2
|
0.8264
|
3
|
0.7513
|
4
|
0.6830
|
5
|
0.6209
|
6
|
0.5645
|
A. Break-even time is between two and three years.
B. Break-even time is between three and four years.
C. Break-even time is between four and five years.
D. Break-even time is between five and six years.
E. This project will never break-even.
57. The calculation of the payback period for an investment when net cash flow is even (equal) is:
A. (Cost of investment)/(Annual net cash flow)
B. (Cost of investment)/(Total net cash flow)
C. (Annual net cash flow)/(Cost of investment)
D. (Total net cash flow)/(Cost of investment)
E. (Total net cash flow)/(Annual net cash flow)
58. Coffer Co. is analyzing two projects for the future. Assume that only one project can be selected.
|
Project X
|
Project Y
|
Cost of machine
|
$68,000
|
$60,000
|
Net cash flow:
|
|
|
Year 1
|
24,000
|
4,000
|
Year 2
|
24,000
|
26,000
|
Year 3
|
24,000
|
26,000
|
Year 4
|
0
|
20,000
|
If the company is using the payback period method and it requires a payback of three years or less, which project should be selected?
A. Project Y.
B. Project X.
C. Both X and Y are acceptable projects.
D. Neither X nor Y is an acceptable project.
E. Project Y because it has a lower initial investment.
59. The time expected to pass before the net cash flows from an investment would return its initial cost is called the:
A. Amortization period.
B. Payback period.
C. Interest period.
D. Budgeting period.
E. Discounted cash flow period.
60. A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the payback period for the new machine?
A. 4 years.
B. 6 years.
C. 10.5 years.
D. 14 years.
E. 42 years.