81. A company bought a machine that has an expected life of six years and no salvage value. Management estimates that this machine will generate annual after-tax net income of $700. If the accounting rate of return is 10%, what was the purchase price of the machine?
A. $7,000
B. $700
C. $28,000
D. $14,000
E. $3,500
82. Which of the following cash flows is not considered when using the net present value method?
A. Future cash inflows.
B. Future cash outflows.
C. Past cash outflows.
D. Nonuniform cash inflows.
E. Cash inflow from the sale of the asset.
83. An estimate of an asset's value to the company, calculated by discounting the future cash flows from the investment at an appropriate rate and then subtracting the initial cost of the investment, is known as:
A. Annual net cash flows.
B. Rate of return on investment.
C. Net present value.
D. Payback period.
E. Unamortized carrying value.
84. Which one of the following methods considers the time value of money in evaluating alternative capital expenditures?
A. Accounting rate of return.
B. Net present value.
C. Payback period.
D. Cash flow method.
E. Return on average investment.
85. Daniels Corporation is considering the purchase of new equipment costing $30,000. The projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of three years and no salvage value. Daniels requires a 12% return on its investments. The factors for the present value of $1 for different periods follow:
Periods
|
12 Percent
|
1
|
0.8929
|
2
|
0.7972
|
3
|
0.7118
|
4
|
0.6355
|
What is the net present value of the machine?
A. $24,018
B. $(3,100)
C. $30,000
D. $26,900
E. $(29,520)
86. Peng Corporation is considering the purchase of new equipment costing $30,000. The projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of four years and no salvage value. Peng requires a 12% return on its investments. The factors for the present value of $1 for different periods follow:
Periods
|
12 Percent
|
1
|
0.8929
|
2
|
0.7972
|
3
|
0.7118
|
4
|
0.6355
|
Calculate the break-even time for this equipment.
A. Break-even time is longer than four years.
B. Break-even time is between three and four years.
C. Break-even time is between two and three years.
D. Break-even time is between one and two years.
E. This project will never break even.
87. Scott Corporation is considering the purchase of new equipment costing $30,000. The projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of three years and a $4,000 salvage value. Scott requires a 12% return on its investments. The factors for the present value of $1 for different periods follow:
Periods
|
12 Percent
|
1
|
0.8929
|
2
|
0.7972
|
3
|
0.7118
|
4
|
0.6355
|
What is the net present value of the machine and what is the maximum Scott would have been willing to pay for it?
A. $(251.52) but Scott would not pay any amount to acquire the machine because the NPV is negative.
B. $(251.52) and Scott would be willing to pay $29,748.48 for the machine.
C. $(251.52) but the price Scott would pay cannot be determined.
D. $900 and Scott would be willing to pay $30,900 to acquire the machine
E. $900 but Scott would not be willing to acquire the machine.
88. The following present value factors are provided for use in this problem:
|
Present Value
|
Present Value of an
|
Periods
|
of 1 at 8%
|
Annuity of 1 at 8%
|
1
|
0.9259
|
0.9259
|
2
|
0.8573
|
1.7833
|
3
|
0.7938
|
2.5771
|
4
|
0.7350
|
3.3121
|
Norman Co. wants to purchase a machine for $40,000 but needs to earn an 8% return. The expected year-end net cash flows are $12,000 in each of the first three years and $16,000 in the fourth year. What is the machine's net present value (rounded to the nearest whole dollar)?
A. $(9,075)
B. $2,685
C. $42,685
D. $(28,240)
E. $52,000
89. A company is considering the purchase of new equipment costing $91,000. The machine has a useful life of four years and no salvage value. The company requires a 12% return on its investments. The factors for the present value of an annuity of 1 for different periods follow:
Periods
|
12 Percent
|
1
|
0.8929
|
2
|
1.6901
|
3
|
2.4018
|
4
|
3.0373
|
Assuming all revenue is to be received at the end of each year, what are the net cash flows for this investment if net present value equals ($11,790)?
A. $78,210
B. $10,920
C. $25,750
D. $237,547
E. $33,513
90. Saxon Manufacturing is considering purchasing two machines. Each machine costs $9,000 and will produce cash flows as follows:
End of
|
Machine
|
Year
|
A
|
B
|
1
|
$5,000
|
$1,000
|
2
|
4,000
|
2,000
|
3
|
2,000
|
11,000
|
|
|
|
Saxon Manufacturing uses the net present value method to make the decision, and it requires a 15% annual return on its investments. The present value factors of 1 at 15% are: 1 year, 0.8696; 2 years, 0.7561; 3 years, 0.6575. Which machine should Saxon purchase?
A. Only Machine A is acceptable.
B. Only Machine B is acceptable.
C. Both machines are acceptable, but A should be selected because it has the greater net present value.
D. Both machines are acceptable, but B should be selected because it has the greater net present value.
E. Neither machine is acceptable.
91. Holder Manufacturing is considering purchasing two machines. Each machine costs $8,000 and will produce cash flows as follows:
End of
|
Machine
|
Year
|
A
|
B
|
1
|
$5,000
|
$1,000
|
2
|
4,000
|
2,000
|
3
|
2,000
|
11,000
|
|
|
|
Holder Manufacturing uses the net present value method to make the decision, and it requires a 15% annual return on its investments. The present value factors of 1 at 15% are: 1 year, 0.8696; 2 years, 0.7561; 3 years, 0.6575. Which machine should Holder purchase?
A. Only Machine A is acceptable.
B. Only Machine B is acceptable.
C. Both machines are acceptable, but A should be selected because it has the greater net present value.
D. Both machines are acceptable, but B should be selected because it has the greater net present value.
E. Neither machine is acceptable.
92. The rate that yields a net present value of zero for an investment is the:
A. Internal rate of return.
B. Accounting rate of return.
C. Net present value rate of return.
D. Zero rate of return.
E. Payback rate of return.
93. There are two basic steps in calculating the internal rate of return. Which of the following represents those two steps?
A. (1) Compute the PV factor for the project and (2) compare it to the hurdle rate.
B. (1) Compute the PV factor for the project and (2) identify the discount rate.
C. (1) Identify the discount rate and (2) compare the IRR to the hurdle rate.
D. (1) Compare IRR to the hurdle rate and (2) accept or reject the project.
E. (1) Select the hurdle rate and (2) compute the PV factor for the project.