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Exam 25: Capital Investment Analysis

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Question 61

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Heidi Company is considering the acquisition of a machine that costs $420,000.The machine is expected to have a useful life of 6 years,a negligible residual value,an annual net cash flow of $120,000,and annual operating income of $83,721.What is the estimated cash payback period for the machine?

A) 3.5 years
B) 5 years
C) 5.1 years
D) 4 years

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

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Question 62

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A qualitative characteristic that may impact upon capital investment analysis is manufacturing flexibility.

A) True
B) False

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Question 63

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Using the tables above,what would be the internal rate of return of an investment of $210,600 that would generate an annual cash inflow of $50,000 for the next 5 years?

A qualitative characteristic that may impact upon capital investment analysis is manufacturing productivity.

Average rate of return equals average investment divided by estimated average annual income.

Using the tables above,what would be the internal rate of return of an investment that required an investment of $227,460 and would generate an annual cash inflow of $60,000 for the next 5 years?

The methods of evaluating capital investment proposals can be separated into two general groups-present value methods and

The amount of the average investment for a proposed investment of $120,000 in a fixed asset with a useful life of 4 years,straight-line depreciation,no residual value,and an expected total net income of $21,600 for the 4 years,is

A project has estimated annual cash flows of $90,000 for 3 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.

Which of the following are two methods of analyzing capital investment proposals that both ignore present value?

A company is considering purchasing a machine for $21,000.The machine will generate income from operations of $2,000; annual net cash flows from the machine will be $3,500.The payback period for the new machine is 10.5 years.

Identify four capital investment evaluation methods discussed in the chapter and discuss the strengths and weaknesses of each method.

The formula for calculating the present value factor for an annuity of $1 is

The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.

Proposals A and B each cost $600,000 and have 5-year lives.Proposal A is expected to provide equal annual net cash flows of $159,000,while the net cash flows for Proposal B are as follows: ​ Determine the cash payback period for each proposal.Round answers to two decimal places.

A company is planning to purchase a machine that will cost $24,000,have a 6-year life,and have no salvage value.The company expects to sell the machine's output of 3,000 units evenly throughout each year.Total income over the life of the machine is estimated to be $12,000.The machine will generate net cash flows per year of $6,000.The payback period for the machine is 12 years.

The computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method.

The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as (1)average rate of return and (2)cash payback methods.

If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested,the proposal should be accepted.

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