Question 1

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 amount invested, resulting in a positive net present value. This means the project should be accepted. Since the desired rate of return used in the present value calculations is 10% and the net present value is positive, the internal rate of return on the project must be greater than 10%. Therefore, choice C is the correct answer.

Question 2

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

The fact that the present value of future cash flows equals the amount to be invested ($100,000) indicates that the project's net present value is zero. Since the IRR of 12% is greater than the company's desired rate of return used to calculate the present value of the future cash flows, the project should be accepted. Therefore, the desired rate of return used to calculate the present value of the future cash flows is equal to 12%. Therefore, the correct answer is D.

Question 3

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%?

Accepted Answer

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

Question 4

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 5

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 6

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 fact that the present value of the future cash flows generated by the project is $145,000 means that the project is not expected to generate enough cash to justify the initial investment of $150,000. If the rate of return on the project was higher than the desired rate of return used to calculate the present value of the future cash flows, the company could consider moving forward with the investment. However, because the rate of return on the project is less than the desired rate of return, it is not a good investment decision.

Question 7

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 8

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 9

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?

Accepted Answer

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

Question 10

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 11

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.

Accepted Answer

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

Question 12

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?

Accepted Answer

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

Question 13

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 14

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.

Accepted Answer

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

Question 15

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 16

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 17

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 18

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) calculation is done by subtracting the investment amount from the present value of the future cash flows. NPV = $143,000 - $150,000 = -$7,000. A negative NPV indicates that the investment will not be profitable and will not generate sufficient cash flows to recover the initial investment. Therefore, the company should not invest in this project.

Question 19

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 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.

Accepted Answer

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

Quiz 10: Capital Investment Analysis

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?

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%?

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.

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 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?

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?

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.

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 $90,000. It is estimated to cost $324,000. Determine the cash payback period.

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

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.

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

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?

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.