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The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation: The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation: The present value index for this investment is: A) 1.00 B) .95 C) 1.25 D) 1.05 The present value index for this investment is:


A) 1.00
B) .95
C) 1.25
D) 1.05

E) All of the above
F) None of the above

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Identify four capital investment analysis models discussed in the chapter and discuss the strengths and weaknesses of each model.

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The four capital investment models discu...

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Which of the following is an advantage of the cash payback method?


A) It is easy to use.
B) It takes into consideration the time value of money.
C) It includes the cash flow over the entire life of the proposal.
D) It emphasizes accounting income.

E) A) and C)
F) None of the above

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What is capital investment analysis? Why are capital investment analysis decisions often difficult and risky?

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Capital investment analysis is the proce...

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Which of the following is important when evaluating long-term investments?


A) Investments must earn a reasonable rate of return
B) The useful life of the asset
C) Proposals should match long term goals.
D) All of the above.

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

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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?


A) The project should not be accepted because the net present value is negative.
B) The internal rate of return on the project is less than 10%.
C) The internal rate of return on the project is more than 10%.
D) The internal rate of return on the project is equal to 10%.

E) None of the above
F) A) and D)

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An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment's internal rate of return? Below is a table for the present value of $1 at compound interest. An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment's internal rate of return? 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. Below is a table for the present value of an annuity of $1 at compound interest. An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment's internal rate of return? 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.

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$185,575 /...

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For years one through five, a proposed expenditure of $500,000 for a fixed asset with a 5-year life has expected net income of $40,000, $35,000, $25,000, $25,000, and $25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and $75,000, respectively. The cash payback period is 5 years.

A) True
B) False

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An anticipated purchase of equipment for $600,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: An anticipated purchase of equipment for $600,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: What is the cash payback period? A) 5 years B) 4 years C) 6 years D) 3 years What is the cash payback period?


A) 5 years
B) 4 years
C) 6 years
D) 3 years

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

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The payback method can be used only when net cash inflows are the same for each period.

A) True
B) False

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The expected average rate of return for a proposed investment of $600,000 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the 4 years, is:


A) 40%
B) 20%
C) 60%
D) 24%

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

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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.

A) True
B) False

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Periods in time that experience increasing price levels are known as periods of:


A) inflation
B) recession
C) depression
D) deflation

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

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Methods that ignore present value in capital investment analysis include the net present value method.

A) True
B) False

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Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?


A) Average rate of return
B) Accounting rate of return
C) Cash payback period
D) Internal rate of return

E) A) and D)
F) None of the above

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Below is a table for the present value of $1 at compound interest. 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. Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%) ? A) $20,352 B) $3,969 C) $22,190 D) $21,259 Below is a table for the present value of an annuity of $1 at compound interest. 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. Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%) ? A) $20,352 B) $3,969 C) $22,190 D) $21,259 Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%) ?


A) $20,352
B) $3,969
C) $22,190
D) $21,259

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

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Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years. What is one widely used method that makes the proposals comparable?


A) Ignore the fact that Proposal F has a useful life of six years and treat it as if it has a useful life of nine years.
B) Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year six.
C) Ignore the useful lives of six and nine years and find an average (7 1/2 years) .
D) Ignore the useful lives of six and nine years and compute the average rate of return.

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

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A qualitative characteristic that may impact upon capital investment analysis is the impact of investment proposals on product quality.

A) True
B) False

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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) yes, because net present value is +$7,000
B) yes, because net present value is -$7,000
C) no, because net present value is +$7,000
D) no, because net present value is -$7,000

E) B) and C)
F) None of the above

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


A) Internal rate of return and average rate of return
B) Net present value and average rate of return
C) Internal rate of return and net present value
D) Average rate of return and cash payback method

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

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Showing 101 - 120 of 179

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