91.The following present value factors are provided for use in this problem.
PeriodsPresent Value
of 1 at 8%Present Value of an
Annuity of 1 at 8%
10.92590.9259
20.85731.7833
30.79382.5771
40.73503.3121
Cliff 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 (round to the nearest whole dollar)?
A. ($9,075).
B. $2,685.
C. $42,685.
D. ($28,240).
E. $52,000.
92.The following present value factors are provided for use in this problem.
PeriodsPresent Value
of $1 at 8%Present Value of an
Annuity of $1 at 8%
10.92590.9259
20.85731.7833
30.79382.5771
40.73503.3121
Xavier Co. wants to purchase a machine for $37,000 with a four year life and a $1,000 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,000 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)?
A. $3,480.
B. $2,745.
C. $40,480.
D. ($3,480).
E. ($2,745).
93.Turk Manufacturing is considering purchasing two machines. Each machine costs $9,000 and will produce cash flows as follows:
End of
YearMachine
AB
1$5,000$1,000
24,0002,000
32,00011,000
Turk 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 Turk 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.
94.Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,000 and will produce cash flows as follows:
End of
YearInvestment
AB
1$8,000$0
28,0000
38,00024,000
The present value factors of $1 each year at 15% are:
10.8696
20.7561
30.6575
The present value of an annuity of $1for 3 years at 15% is 2.2832
Which investment should Alfarsi choose?
A. Only Investment A is acceptable.
B. Only Investment B is acceptable.
C. Both investments are acceptable, but A should be selected because it has the greater net present value.
D. Both investments are acceptable, but B should be selected because it has the greater net present value.
E. Neither machine is acceptable.
95.Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,000 and will produce cash flows as follows:
End of
YearInvestment
AB
1$8,000$0
28,0000
38,00024,000
The present value factors of $1 each year at 15% are:
10.8696
20.7561
30.6575
The present value of an annuity of $1 for 3 years at 15% is 2.2832
The net present value of Investment A is:
A. $18,266.
B. ($15,000).
C. $9,000.
D. ($20,549).
E. $3,266.
96.Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,000 and will produce cash flows as follows:
End of
YearInvestment
AB
1$8,000$0
28,0000
38,00024,000
The present value factors of $1 each year at 15% are:
10.8696
20.7561
30.6575
The present value of an annuity of $1 for 3 years at 15% is 2.2832
The net present value of Investment B is:
A. $780.
B. ($15,780).
C. $9,000.
D. $39,797.
E. ($5,918).
97.A company is considering the purchase of new equipment for $45,000. The projected annual net cash flows are $19,000. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 12% return on investment. The present value of an annuity of 1 for various periods follows:
PeriodPresent value of an annuity of 1 at 12%
10.8929
21.6901
32.4018
What is the net present value of this machine assuming all cash flows occur at year-end?
A. ($1,768)
B. $3,000
C. $634
D. $19,000
E. $45,634
98.A company can buy a machine that is expected to have a three-year life and a $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be received at the end of each year. If a table of present values of 1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%?
A. $118,855
B. $583,676
C. $629,788
D. $705,391
E. $1,918,855
99.A company is considering a 5-year project. The company plans to invest $60,000 now and it forecasts cash flows for each year of $16,200. The company requires a hurdle rate of 12%. Calculate the internal rate of return to determine whether it should accept this project. Selected factors for a present value of an annuity of 1 for five years are shown below:
Interest ratePresent value of an annuity
of $1 factor for year 5
10%3.7908
12%3.6048
14%3.4331
A. The project should be accepted.
B. The project should be rejected because it earns less than 10%.
C. The project earns more than 10% but less than 12%. At a hurdle rate of 12%, the project should be rejected.
D. Only 9% is acceptable.
E. Only 10% is acceptable.
100.Tressor Company is considering a 5-year project. The company plans to invest $90,000 now and it forecasts cash flows for each year of $27,000. The company requires that investments yield a discount rate of at least 14%. Selected factors for a present value of an annuity of 1 for five years are shown below:
Interest ratePresent value of an annuity
of $1 factor for year 5
10%3.7908
12%3.6048
14%3.4331
Calculate the internal rate of return to determine whether it should accept this project.
A. The project should be accepted because it will earn more than 14%.
B. The project should be accepted because it will earn more than 10%.
C. The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.
D. The project should be rejected because it will earn less than 14%.
E. The project should be rejected because it will not earn exactly 14%.