Question 1

Replacing old office equipment at an immediate cost of $3000 and $4000 four years from now will result in savings of $400 semi-annually for ten years.Should the old equipment be replaced
a)at 8% compounded annually?
b)at 12% compounded annually?

Accepted Answer

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Question 2

A commitment on the project requires an initial outlay of $10 000.00 and a further outlay of $5000.00 after one year.Net returns are $5 000.00 per year for five years.What is the net present value of the project at 16%?

Accepted Answer

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Question 3

A company is considering a project that will require a cost outlay of $25 000 per year for 3 years.At the end of the project the salvage value will be $15 000.The project will yield annual net returns of $17 500 for 5 years.Alternative investments are available that will yield a return of 15%.Should the company undertake the project?

Accepted Answer

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Question 4

A new venture that requires outlays of $127 000 for each of the first two years will yield net returns of $85 000 in each year for years 3 to 6 and $70 000 for each of the following four years.A residual value of $130 000 can be recovered at the end of the last income period.Should the venture be undertaken if a yield of 11.56% is required?

Accepted Answer

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Question 5

A once in a lifetime project requires an immediate outlay of $100 000 and $25 000 at the end of each year for 3 years.Net returns are nil for the first 3 years and $30 000 per year thereafter for fourteen years.What is the net present value of the project at 16%?

Accepted Answer

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Question 6

Project A requires an immediate investment of $18 000 and another $16 000 in three years.Net returns are $4500 after two years,$13 000 after four years,and $8900 after six years.Project B requires an immediate investment of $4000,another $6000 after two years,and $4000 after four years.Net returns are $3375 per year for 8 years.Determine the net present value at 11%.Which project is preferable according to the net present value criterion?

Accepted Answer

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Question 7

A company is considering a project that will require a cost outlay of $17 200 per year for 3 years.At the end of the project the salvage value will be $15 000.The project will yield returns of $60 000 in Year 4 and $20 000 in Year 5.There are no returns after Year 5.Alternative investments are available that will yield a return of 14.2%.Should the company undertake the project?

Accepted Answer

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Question 8

Assume that the net present value of a project is $ 220 at 22%,and -$305 at 24%.Use linear
interpolation to compute the rate of return correct to the nearest tenth of a percent.

Accepted Answer

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Question 9

The introduction of a new product requires an immediate outlay of $145 000 and has a residual value of $30 000 after 10 years.The anticipated net returns from the marketing of the product are expected to be $25 500 per year for ten years.What is the rate of return on the investment (correct to the nearest tenth of a percent)?
a)Use linear interpolation to find the approximate value of the rate of return.
b)Find the answer using Cash Flow and IRR.

Accepted Answer

The answer of The introduction of a new product requires...

Question 10

A company is considering a project that will require a cost outlay of $30 000 per year for three years.At the end of the project,the company expects to salvage the physical assets for $50 000.The project is estimated to yield net returns of $60 000 in Year 4,$40 000 in Year 5,and $15 000 for each of the following five years.Alternative investments are available yielding a rate of return of 14.5%.Compute the net present value of the project.

Accepted Answer

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Question 11

A special chemical development project requires an immediate outlay of $110 000 and $50 000 at the end of each year for 3 years.Net returns are nil for the first 3 years and $60 000 per year thereafter for fourteen years.What is the net present value of the project at 17%?

Accepted Answer

The answer of A special chemical development project requires an...

Question 12

A restaurant may be purchased for $250 000.Annual net income from the operation of the restaurant is expected to be $61 000 for each of the first 4 years and $30 000 for each of the next three years.After 7 years,the restaurant can be sold for $315 000.Determine the rate of return on the investment correct to the nearest tenth of a percent.
a)Use linear interpolation to find the approximate value of the rate of return.
b)Find the answer using Cash Flow and IRR.

Accepted Answer

The answer of A restaurant may be purchased for $250...

Question 13

The SHREK Company has to make a decision about expanding its production facilities.Research indicates that the desired expansion would require an immediate outlay of $160 000 and an outlay of a further $60 000 in five years.Net returns are estimated to be $25 000 per year for the first five years and $20 000 per year for the following 9 years.Find the net present value of the project.Should the expansion project be undertaken if the required rate of return is 10% compounded annually?

Accepted Answer

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Question 14

LD Winery expects a demand of 10 000 bottles per year for a special purpose wine for six years.Net return per unit is $6.10.To produce the wine,LD must buy equipment costing $200 000 with a life of six years and a salvage value of $10 000 after six years.The company estimates that repair costs will be $8000 per year during Years 2 to 6.Should LD invest in the equipment if it requires a return of 16% on its investment?

Accepted Answer

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Question 15

Big Sky Company expects a demand of 30 000 units per year for a special purpose component for six years.Net return per unit is $4.10.To produce the component,the company must buy a machine costing $245 000 with a life of six years and a salvage value of $47 000 after six years.The company estimates that repair costs will be $18 000 per year during Years 2 to 6.If Big Sky company requires a return on investment of 15.5%,should it market the component?

Accepted Answer

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Question 16

Suppose you are offered two investment alternatives.If you choose Alternative 1,you will have to make an immediate outlay of $26 000.In return,you will receive $1500 at the end of every three months for the next ten years.If you choose Alternative 2,you will have to make an outlay of $14 000 now and $8000 in two years.In return,you will receive $60 000 ten years from now.Interest is 8.22% compounded semi-annually.Compute the net present value for each alternative and determine which investment should be accepted or rejected according to the net present value criterion.

Accepted Answer

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Question 17

A project requires an initial outlay of $350 000 and a further outlay of $100 000 after one year.Net returns are $105 000 per year for five years.What is the net present value of the project at 9.9%?

Accepted Answer

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Question 18

Assume that the net present value of a project is $ 3870 at 10%,and -$1853 at 12%.Use linear interpolation to compute the rate of return correct to the nearest tenth of a percent.

Accepted Answer

The answer of Assume that the net present value of...

Question 19

Replacing old equipment at an immediate cost of $5000 and $7000 six years from now will result in a savings of $3000 semi-annually for ten years.At 11% compounded annually,should the old equipment be replaced?

Accepted Answer

The answer of Replacing old equipment at an immediate cost...

Question 20

An investment of $180 000 yields annual net returns of $27 700 for seven years.What is the rate of return on the investment (correct to the nearest tenth of a percent)if part of the initial investment,in the amount of,$80 000 is recovered at the end of 7 years?
a)Use linear interpolation to find the approximate value of the rate of return.
b)Find the answer using Cash Flow and IRR.

Accepted Answer

The answer of An investment of $180 000 yields annual...

Quiz 16: Investment Decision Applications

Replacing old office equipment at an immediate cost of $3000 and $4000 four years from now will result in savings of $400 semi-annually for ten years.Should the old equipment be replaced a)at 8% compounded annually? b)at 12% compounded annually?

A commitment on the project requires an initial outlay of $10 000.00 and a further outlay of $5000.00 after one year.Net returns are $5 000.00 per year for five years.What is the net present value of the project at 16%?

A once in a lifetime project requires an immediate outlay of $100 000 and $25 000 at the end of each year for 3 years.Net returns are nil for the first 3 years and $30 000 per year thereafter for fourteen years.What is the net present value of the project at 16%?

Assume that the net present value of a project is $ 220 at 22%,and -$305 at 24%.Use linear interpolation to compute the rate of return correct to the nearest tenth of a percent.

A special chemical development project requires an immediate outlay of $110 000 and $50 000 at the end of each year for 3 years.Net returns are nil for the first 3 years and $60 000 per year thereafter for fourteen years.What is the net present value of the project at 17%?

A project requires an initial outlay of $350 000 and a further outlay of $100 000 after one year.Net returns are $105 000 per year for five years.What is the net present value of the project at 9.9%?

Assume that the net present value of a project is $ 3870 at 10%,and -$1853 at 12%.Use linear interpolation to compute the rate of return correct to the nearest tenth of a percent.

Replacing old equipment at an immediate cost of $5000 and $7000 six years from now will result in a savings of $3000 semi-annually for ten years.At 11% compounded annually,should the old equipment be replaced?