Question 1

Norton Company is considering a project that will require an initial investment of $750,000 and will return $200,000 each year for five years.
Required:
If taxes are ignored and the required rate of return is 9%, what is the project's net present value? Based on this analysis, should Norton Company proceed with the project?
Below is a table for the present value of $1 at compound interest.
 
 Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

The answer of Norton Company is considering a project that...

Question 2

An 8-year project is estimated to cost $400,000 and have no residual value. If the straight-line depreciation method is used and the average rate of return is 5%, determine the estimated annual net income.

Accepted Answer

The answer of An 8-year project is estimated to cost...

Question 3

A project is estimated to cost $273,840 and provide annual cash flows of $60,000 for seven years. Determine the internal rate of return for this project, using the following table.

Accepted Answer

The answer of A project is estimated to cost $273,840...

Question 4

A project has estimated annual cash flows of $95,000 for four years and is estimated to cost $260,000. Assume a minimum acceptable rate of return of 10%. Using the following tables determine the (a) net present value of the project and (b) the present value index, rounded to two decimal places.
Below is a table for the present value of $1 at compound interest.
 
 Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

The answer of A project has estimated annual cash flows...

Question 5

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows is $143,000. Should the company invest in this project?

Accepted Answer

The net present value (NPV) of the project is calculated by subtracting the initial investment from the present value of future cash flows. In this case, NPV = $143,000 - $150,000 = -$7,000. Since the NPV is negative, the company should not invest in this project as it is expected to generate less than the required return on investment.

Question 6

An 6-year project is estimated to cost $350,000 and have no residual value. If the straight-line depreciation method is used and the average rate of return is 12%, determine the estimated annual net income.

Accepted Answer

The answer of An 6-year project is estimated to cost...

Question 7

Determine the average rate of return for a project that is estimated to yield total income of $400,000 over four years, cost $720,000, and has a $70,000 residual value. Round answers in percentage to one decimal place.

Accepted Answer

The answer of Determine the average rate of return for...

Question 8

Determine the average rate of return for a project that is estimated to yield total income of $250,000 over four years, cost $480,000, and has a $20,000 residual value.

Accepted Answer

The answer of Determine the average rate of return for...

Question 9

A project has estimated annual net cash flows of $50,000. It is estimated to cost $180,000. Determine the cash payback period.

Accepted Answer

The answer of A project has estimated annual net cash...

Question 10

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $170,000. The present value of the future cash flows is $185,000. The company's desired rate of return used in the present value calculations was 10%. Which of the following statements is true?

Accepted Answer

The present value of the future cash flows is greater than the initial investment, indicating a positive net present value (NPV). This means the investment is expected to return more than the company's desired rate of return of 10%. Therefore, the internal rate of return (IRR) on the project must be more than 10% for the NPV to be positive. Option C is the only choice that reflects this.

Question 11

In capital rationing, alternative proposals that survive initial and secondary screening are normally evaluated in terms of:

Accepted Answer

The answer of In capital rationing, alternative proposals that survive...

Question 12

A project has estimated annual net cash flows of $90,000. It is estimated to cost $324,000. Determine the cash payback period.

Accepted Answer

The answer of A project has estimated annual net cash...

Question 13

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company's desired rate of return is $100,000. The IRR on the project is 12%. Which of the following statements is true?

Accepted Answer

Since the present value of the future cash flows at the desired rate of return is equal to the amount to be invested, the net present value is zero. The IRR is 12%, which means that the project is expected to generate a return of 12% per year. Therefore, the desired rate of return used to calculate the present value of the future cash flows is equal to 12%. The project should be accepted because the IRR is greater than the desired rate of return, which means that the project is expected to generate a return that exceeds the cost of capital.

Question 14

A project is estimated to cost $248,400 and provide annual cash flows of $50,000 for eight years. Determine the internal rate of return for this project, using the following table.

Accepted Answer

The answer of A project is estimated to cost $248,400...

Question 15

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company's desired rate of return is $105,000. The IRR on the project is 12%. Which of the following statements is true?

Accepted Answer

The answer of A company is contemplating investing in a...

Question 16

What is the present value of $8,000 to be received at the end of six years, if the required rate of return is 15%?
Below is a table for the present value of $1 at compound interest.
 
 Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

The answer of What is the present value of $8,000...

Question 17

Project A requires an original investment of $50,000. The project will yield cash flows of $15,000 per year for seven years. Project B has a calculated net present value of $13,500 over a four year life. Project A could be sold at the end of four years for a price of $25,000. (a) Using the proper table below determine the net present value of Project A over a four-year life with salvage value assuming a minimum rate of return of 12%. (b) Which project provides the greatest net present value?
Below is a table for the present value of $1 at compound interest.
  Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

The answer of Project A requires an original investment of...

Question 18

Project A requires an original investment of $65,000. The project will yield cash flows of $15,000 per year for seven years. Project B has a calculated net present value of $5,500 over a five year life. Project A could be sold at the end of five years for a price of $30,000. (a) Using the proper table below determine the net present value of Project A over a five-year life with salvage value assuming a minimum rate of return of 12%. (b) Which project provides the greatest net present value?
Below is a table for the present value of $1 at compound interest.
 
 Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

The answer of Project A requires an original investment of...

Question 19

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows generated by the project is $145,000. Should they invest in this project?

Accepted Answer

The present value of the future cash flows is less than the amount to be invested, resulting in a negative net present value. This means that the rate of return on the project is less than the desired rate of return used to calculate the present value of the future cash flows. Therefore, it is not advisable to invest in this project.

Question 20

A project has estimated annual cash flows of $90,000 for three years and is estimated to cost $250,000. Assume a minimum acceptable rate of return of 10%. Using the following tables determine the (a) net present value of the project and (b) the present value index, rounded to two decimal places.
Below is a table for the present value of $1 at compound interest.
  Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

The answer of A project has estimated annual cash flows...

Quiz 25: Capital Investment Analysis

An 8-year project is estimated to cost $400,000 and have no residual value. If the straight-line depreciation method is used and the average rate of return is 5%, determine the estimated annual net income.

A project is estimated to cost $273,840 and provide annual cash flows of $60,000 for seven years. Determine the internal rate of return for this project, using the following table.

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows is $143,000. Should the company invest in this project?

An 6-year project is estimated to cost $350,000 and have no residual value. If the straight-line depreciation method is used and the average rate of return is 12%, determine the estimated annual net income.

Determine the average rate of return for a project that is estimated to yield total income of $400,000 over four years, cost $720,000, and has a $70,000 residual value. Round answers in percentage to one decimal place.

Determine the average rate of return for a project that is estimated to yield total income of $250,000 over four years, cost $480,000, and has a $20,000 residual value.

A project has estimated annual net cash flows of $50,000. It is estimated to cost $180,000. Determine the cash payback period.

In capital rationing, alternative proposals that survive initial and secondary screening are normally evaluated in terms of:

A project has estimated annual net cash flows of $90,000. It is estimated to cost $324,000. Determine the cash payback period.

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company's desired rate of return is $100,000. The IRR on the project is 12%. Which of the following statements is true?

A project is estimated to cost $248,400 and provide annual cash flows of $50,000 for eight years. Determine the internal rate of return for this project, using the following table.

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company's desired rate of return is $105,000. The IRR on the project is 12%. Which of the following statements is true?

What is the present value of $8,000 to be received at the end of six years, if the required rate of return is 15%? Below is a table for the present value of $1 at compound interest. Below is a table for the present value of an annuity of $1 at compound interest.

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows generated by the project is $145,000. Should they invest in this project?