12 other half – Flashcards

The project's NPV should be higher, but be less than $8,000 higher, with the residual value included.

Which of the following is a weakness of the internal rate of return (IRR)? A) IRR assumes that the cash inflows from the project are immediately reinvested at the minimum required rate of return.

Another name for the minimum desired rate of return is

A company would consider all of the following in computing the IRR of an investment, except

(Present value tables are required.) Figgey, a plastics processor, is considering the purchase of a high-speed extruder as one option. The new extruder would cost $52,000 and would have a residual value of $5,000 at the end of its 8 year life. The annual operating expenses of the new extruder would be $8,000. The other option that Figgey has is to rebuild its existing extruder. The rebuilding would require an investment of $30,000 and would extend the life of the existing extruder by 8 years. The existing extruder has annual operating costs of $11,000 per year and does not have a residual value. Figgey discount rate is 14%. Using net present value analysis, which option is the better option and by how much?

Senseman Company has three potential projects from which to choose. Selected information on each of the three projects follows: Project A Project B Project C Investment required $ 42,500 $ 56,000 $ 53,700 Net present value of project $ 45,700 $ 75,400 $ 70,200 Using the profitability index, rank the projects from most profitable to least profitable.

Silver Creations is evaluating a project that would require an initial investment of $36,000. The present value of the net cash inflows associated with this project would be $43,200. The profitability index for this project would be closest to

(Present value tables are needed.) Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two-the B14 Model and the F54 Model. Financial data about the two choices follows. B14 Model F54 Model Investment $ 320,000 $ 240,000 Useful life (years) 8 8 Estimated annual net cash inflows for useful life $ 70,000 $ 35,000 Residual value $ 30,000 $ 10,000 Depreciation method Straight-line Straight-line Required rate of return 14% 10% What is the total present value of future cash inflows from the F54 Model?

(Present value tables are needed.) Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two: the B14 Model and the F54 Model. Financial data about the two choices follows. B14 Model F54 Model Investment $ 320,000 $ 240,000 Useful life (years) 8 8 Estimated annual net cash inflows for useful life $ 70,000 $ 35,000 Residual value $ 30,000 $ 10,000 Depreciation method Straight-line Straight-line Required rate of return 14% 10% What is the total present value of future cash inflows from the B14 Model?

(Present value tables are needed.) Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two: the B14 Model and the F54 Model. Financial data about the two choices follows. B14 Model F54 Model Investment $ 320,000 $ 240,000 Useful life (years) 8 8 Estimated annual net cash inflows for useful life $ 70,000 $ 35,000 Residual value $ 30,000 $ 10,000 Depreciation method Straight-line Straight-line Required rate of return 14% 10% What is the net present value of the F54 Model?

(Present value tables are needed.) Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two: the B14 Model and the F54 Model. Financial data about the two choices follows. B14 Model F54 Model Investment $ 320,000 $ 240,000 Useful life (years) 8 8 Estimated annual net cash inflows for useful life $ 70,000 $ 35,000 Residual value $ 30,000 $ 10,000 Depreciation method Straight-line Straight-line Required rate of return 14% 10% What is the net present value of the B14 Model?

(Present value tables are needed.) Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair. The company has narrowed their choices down to two: the B14 Model and the F54 Model. Financial data about the two choices follows. B14 Model F54 Model Investment $ 320,000 $ 240,000 Useful life (years) 8 8 Estimated annual net cash inflows for useful life $ 70,000 $ 35,000 Residual value $ 30,000 $ 10,000 Depreciation method Straight-line Straight-line Required rate of return 14% 10% Using the net present value model, which alternative should the company select?

Present value tables are needed.) The Janus Vending Machine Company is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision: Soda Machines Snack Machines Investment $75,000 $50,000 Useful life (years) 5 10 Estimated annual net cash inflows for useful life $30,000 $18,000 Residual value $30,000 $10,000 Depreciation method straight-line straight-line Required rate of return 8% 12% Using the net present value model, which alternative should Janus Vending Machine Company select?

(Present value tables are needed.) Somerville Corporation is considering investing in specialized equipment costing $618,000. The equipment has a useful life of 5 years and a residual value of $55,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are: Year 1 $ 250,000 Year 2 $ 190,000 Year 3 $ 152,000 Year 4 $ 112,000 Year 5 $ 95,000 $ 799,000 Somerville Corporation's required rate of return is 14%. The net present value of the investment is closest to

(Present value tables are needed.) Somerville Corporation is considering investing in specialized equipment costing $618,000. The equipment has a useful life of 5 years and a residual value of $55,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are: Year 1 $ 250,000 Year 2 $ 190,000 Year 3 $ 152,000 Year 4 $ 112,000 Year 5 $ 95,000 $ 799,000 Somerville Corporation's required rate of return is 14%. Is the internal rate of return of the investment equal to, higher than, or lower than 14%?

(Present value tables are needed.) Mulheim Corporation is deciding whether to automate one phase of its production process. The equipment has a six-year life and will cost $410,000. Projected net cash inflows from the equipment are as follows: Year 1 $ 120,000 Year 2 $ 100,000 Year 3 $ 110,000 Year 4 $ 100,000 Year 5 $ 95,000 Year 6 $ 90,000 Mulheim Corporation's hurdle rate is 12%. Assume the residual value is zero. What is the net present value of the equipment?

(Present value tables are needed.) Family Fun Park is evaluating the purchase of a new game to be located on its Midway. Family Fun has narrowed their choices down to two: the Wacky Water Race game and the Whack-A-Mole game. Financial data about the two choices follows. Wacky Water Race Whack-A- Mole Investment $ 32,000 $ 22,000 Useful life 5 5 Estimated annual net cash inflows for 5 years $ 8,000 $ 6,000 Residual value $ 2,000 $ 1,000 Depreciation method straight-line straight-line Required rate of return 8% 10% Using the net present value model, which alternative(s) should Family Fun Park select?

A manager wants to know which investment decision will affect the bottom line of the financial statements according to Generally Accepted Accounting Principles. Which capital budgeting method would he choose?

A company is evaluating a variety of different capital investment opportunities. Due to limited funds, the company can only choose one project. What would be the best capital budgeting method for this company to use to select a project?

The ________ capital budgeting method uses accrual accounting income.

Which of the following is not an advantage of post-audits of capital investments?

The ________ capital budgeting model considers both profitability and the time value of money.

The ________ capital budgeting model is generally the simplest to compute.

Which of the capital budgeting methods is the best?

The ________ capital budgeting methods are based on cash flows, profitability, and the time value of money.

The ________ is generally considered to be the most superior method for making capital budgeting decisions.

"Management's minimum desired rate of return on an investment" is best described by which of the following terms?

"A measure of profitability computed by dividing the average annual operating income by the amount of the investment" is best described by which of the following terms?

The "rate of return that makes the NPV of a capital project equal to zero" is best described by which of the following terms?

The "decision model that computes the difference between the present value of the investment's net cash inflows, using a desired rate of return, and the cost of the initial investment" is best described by which of the following terms?