Exam 11: Capital Budgeting

Cortland Corp.is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in net cash flows of $100,000.The equipment will have an initial cost of $400,000 and have a 5-year life.If the salvage value of the equipment is estimated to be $75,000,what is the annual net income? Ignore income taxes.

If you invest $10,000 today in a savings account that earns 5% interest,compounded annually,how much would be in the account at the end of ten years? (Future Value of $1,Present Value of $1,Future Value Annuity of $1,Present Value Annuity of $1. )(Use appropriate factor from the PV tables.Round your final answer to nearest dollar amount. )

When comparing mutually exclusive capital investments,managers should:

How much would you need to deposit now in a savings account that earns 5% interest,compounded annually,in order to withdraw $5,000 at the end of every year for ten years? (Future Value of $1,Present Value of $1,Future Value Annuity of $1,Present Value Annuity of $1. )(Use appropriate factor from the PV tables.Round your final answer to the nearest dollar amount. )

You want to invest $10,000 in a business opportunity.If you keep the money invested in the business for two years,you will receive $11,000 back.If you keep the money invested in the business for five years,you will receive $13,000 back.Currently,the money is in your savings account,which earns 5% interest,compounded annually. a.What is the future value of the money if it remains in your savings account for two years? b.What is the future value of the money if it remains in your savings account for five years? c.Is it better to invest in the business for two years,five years,or not at all? Why?

Byron Corp.is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in cash flow of $100,000.The equipment will have an initial cost of $400,000 and have a 5-year life.The salvage value of the equipment is estimated to be $75,000.If the hurdle rate is 10%,what is the approximate net present value? Ignore income taxes.(Future Value of $1,Present Value of $1,Future Value Annuity of $1,Present Value Annuity of $1. )(Use appropriate factor from the PV tables.Round your final answer to the nearest dollar amount. )