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Exam 13: Capital Budgeting Decisions

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Question 71

Multiple Choice

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Ignoring any salvage value,to the nearest whole dollar how large would the annual benefit have to be to make the investment in the aircraft financially attractive?

A) $439,238
B) $124,890
C) $87,848
D) $57,101

E) All of the above
F) C) and D)

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Question 72

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(Ignore income taxes in this problem.) The following data pertain to an investment proposal: The net present value of the proposed investment is closest to:

A) $2,622
B) $5,146
C) $2,524
D) $31,000

E) B) and C)
F) A) and D)

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Question 73

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(Ignore income taxes in this problem.)The following data concern an investment project: The working capital will be released for use elsewhere at the conclusion of the project. Required: Compute the project's net present value.

(Ignore income taxes in this problem) The management of Elamin Corporation is considering the purchase of a machine that would cost $365,695 and would have a useful life of 9 years.The machine would have no salvage value.The machine would reduce labor and other operating costs by $61,000 per year.The internal rate of return on the investment in the new machine is closest to:

An investment project with a project profitability index of 0.04 has an internal rate of return that is less than the discount rate.

(Ignore income taxes in this problem.) Cannula Vending Corporation is expanding operations and needs to purchase additional vending machines.There are currently two companies,Viscera,Inc.and Gullet International,that produce and sell machines that will do the job.Information related to the specifications of each company's machine are as follows: Cannula's discount rate is 18%.Cannula uses the straight-line method of depreciation.Using net present value analysis,which company's machine should Cannula purchase and what is the approximate difference between the net present values of the competing company's machines?

(Ignore income taxes in this problem.) Eddie Corporation is considering the following three investment projects: -The profitability index of investment project D is closest to:

The payback method is most appropriate for projects whose cash flows do not extend far into the future.

(Ignore income taxes in this problem.) Welch Corporation is planning an investment with the following characteristics: The initial cost of the equipment is closest to:

(Ignore income taxes in this problem.)Boxton Corporation's required rate of return is 12%.The company is considering the purchase of a new machine that will save $20,000 per year in cash operating costs.The machine will cost $128,360 and will have a 10-year useful life with zero salvage value.Straight-line depreciation will be used. Required: Compute the machine's internal rate of return.Would you recommend purchase of the machine? Explain.

Amster Corporation has not yet decided on the required rate of return to use in its capital budgeting.This lack of information will prevent Amster from calculating a project's:

(Ignore income taxes in this problem.) Joetz Corporation has gathered the following data on a proposed investment project: The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. -The payback period for the investment is:

The project profitability index and the internal rate of return:

(Ignore income taxes in this problem.) Congener Beverage Corporation is considering an investment in a project that has an internal rate of return of 20%.The only cash outflow for this project is the initial investment.The project is estimated to have an 8 year life and no salvage value.Cash inflows from this project are expected to be $100,000 per year in each of the 8 years.Congener's discount rate is 16%.What is the net present value of this project?

(Ignore income taxes in this problem.)Tiff Corporation has provided the following data concerning a proposed investment project: The company uses a discount rate of 16%.The working capital would be released at the end of the project. Required: Compute the net present value of the project.

(Ignore income taxes in this problem.) Almendarez Corporation is considering the purchase of a machine that would cost $320,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $51,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $72,000. The company requires a minimum pretax return of 18% on all investment projects. -The present value of the annual cost savings of $72,000 is closest to:

(Ignore income taxes in this problem.)The management of an amusement park is considering purchasing a new ride for $80,000 that would have a useful life of 10 years and a salvage value of $10,000.The ride would require annual operating costs of $32,000 throughout its useful life.The company's discount rate is 9%.Management is unsure about how much additional ticket revenue the new ride would generate-particularly since customers pay a flat fee when they enter the park that entitles them to unlimited rides.Hopefully,the presence of the ride would attract new customers. Required: How much additional revenue would the ride have to generate per year to make it an attractive investment?

(Ignore income taxes in this problem.)Joanette,Inc.,is considering the purchase of a machine that would cost $240,000 and would last for 5 years,at the end of which,the machine would have a salvage value of $48,000.The machine would reduce labor and other costs by $62,000 per year.Additional working capital of $7,000 would be needed immediately,all of which would be recovered at the end of 5 years.The company requires a minimum pretax return of 17% on all investment projects. Required: Determine the net present value of the project.Show your work!

(Ignore income taxes in this problem) The management of Penfold Corporation is considering the purchase of a machine that would cost $440,000,would last for 7 years,and would have no salvage value.The machine would reduce labor and other costs by $102,000 per year.The company requires a minimum pretax return of 16% on all investment projects.The net present value of the proposed project is closest to:

(Ignore income taxes in this problem.) A company has provided the following data concerning a proposed project: The annual cost savings must be closest to: