71.A company is considering the purchase of a new piece of equipment for $90,000. Predicted annual cash inflows from this investment are $36,000 (year 1), $30,000 (year 2), $18,000 (year 3), $12,000 (year 4) and $6,000 (year 5). The payback period is:
A. 4.50 years.
B. 4.25 years.
C. 3.50 years.
D. 3.00 years.
E. 2.50 years.
72.A disadvantage of using the payback period to compare investment alternatives is that:
A. It ignores cash flows beyond the payback period.
B. It includes the time value of money.
C. It cannot be used when cash flows are not uniform.
D. It cannot be used if a company records depreciation.
E. It cannot be used to compare investments with different initial investments.
73.A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $12,000 per year including depreciation of $3,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?
A. 20.0 years.
B. 6.0 years.
C. 7.5 years.
D. 12.0 years.
E. 8.9 years.
74.A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year. The company's tax rate is 40%. What is the approximate accounting rate of return for the machine?
A. 13%
B. 17%
C. 8%
D. 27%
E. 10%
75.A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?
Sales $90,000
Costs:
Manufacturing$52,000
Depreciation on machine4,000
Selling and administrative expenses 30,000(86,000)
Income before taxes $4,000
Income tax (50%) (2,000)
Net income $2,000
A. 24 years.
B. 12 years.
C. 6 years.
D. 4 years.
E. 1 year.
76.A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?
Sales $90,000
Costs:
Manufacturing$52,000
Depreciation on machine4,000
Selling and administrative expenses 30,000(86,000)
Income before taxes $4,000
Income tax (50%) (2,000)
Net income $2,000
A. 33.3%.
B. 16.7%.
C. 50.0%.
D. 8.3%.
E. 4%.
77.After-tax net income divided by the average amount invested in a project, is the:
A. Net present value rate.
B. Payback rate.
C. Accounting rate of return.
D. Earnings from investment.
E. Profit rate.
78.A company buys a machine for $60,000 that has an expected life of 9 years and no salvage value. The company anticipates a yearly net income of $2,850 after taxes of 30%, with the cash flows to be received evenly throughout each year. What is the accounting rate of return?
A. 2.85%.
B. 4.75%.
C. 6.65%.
D. 9.50%.
E. 42.75%.
79.A company buys a machine for $76,000 that has an expected life of 6 years and no salvage value. The company anticipates a yearly after tax net income of $1,805. What is the accounting rate of return?
A. 2.85%.
B. 4.75%.
C. 6.65%.
D. 9.50%.
E. 42.75%.
80.Carmel Corporation is considering the purchase of a machine costing $36,000 with a 6-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?
A. $6,000.
B. $7,000.
C. $18,000.
D. $21,000.
E. $36,000.