Exam 12: Statement of Cash Flows

Richman Co.purchased some equipment 3 years ago.The company's required rate of return is 12%, and the net present value of the project was $(900).Annual cost savings were: $10,000 for year 1; $8,000 for year 2; and $6,000 for year 3.The amount of the initial investment was Present Value PV of an Annuity Year of 1 at 12\% of 1 at 12\% 1 .893 .893 2 .797 1.690 3 .712 2.402

Use the following information for questions Cleaners, Inc. is considering purchasing equipment costing $60,000 with a 6-year useful life. The equipment will provide cost savings of $14,600 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. $\text { Present Value of an Annuity of } 1$ Period 8\% 9\% 10\% 11\% 12\% 15\% 6 4.623 4.486 4.355 4.231 4.111 3.784 -What is the approximate internal rate of return for this investment?

The capital budgeting technique that finds the interest yield of the potential investment is the

Intangible benefits in capital budgeting would include all of the following except increased

A negative net present value indicates that the

The capital budgeting committee ultimately approves the capital expenditure budget for the year.

By ignoring intangible benefits, capital budgeting techniques might incorrectly eliminate projects that could be financially beneficial to the company.

In evaluating high-tech projects,

The primary capital budgeting method that uses discounted cash flow techniques is the

All of the following statements about intangible benefits in capital budgeting are correct except that they

A project has an annual rate of return of 15%.The project cost $120,000, has a 5-year useful life, and no salvage value.Straight-line depreciation is used.The annual net income, exclusive of depreciation, was

The profitability index

Colaw Company is considering buying equipment for $240,000 with a useful life of five years and an estimated salvage value of $12,000.If annual expected income is $21,000, the denominator in computing the annual rate of return is

The annual rate of return method is based on

If the internal rate of return exceeds the discount rate, then the net present value of a project is

If a project has a zero net present value, then the internal rate of return will be

Use the following information for questions Selma Inc. is comparing several alternative capital budgeting projects as shown below: Projects A Projects B Projects C Initial investment \ 80,000 \ 120,000 \ 160,000 Present value of net cash flows 90,000 110,000 200,000 -Using the profitability index, the projects rank as

If a project has a salvage value greater than zero, the salvage value will

A capital budgeting method that takes into consideration the time value of money is the

A company projects an increase in net income of $135,000 each year for the next five years if it invests $900,000 in new equipment.The equipment has a five-year life and an estimated salvage value of $300,000.What is the annual rate of return on this investment?