Exam 12: Planning for Capital Investments

A company projects an increase in net income of $30,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $100,000. What is the annual rate of return on this investment?

A project with a zero net present value indicates that it is

Which of the following will increase the net present value of a project?

A project has annual income exclusive of depreciation of $80,000. The annual rate of return is 15% and annual depreciation is $20,000. There is no salvage value. The internal rate of return is 12%. The initial cost of the project was

Using the net present value method, a net present value of zero indicates that the project would not be acceptable.

A major advantage of the annual rate of return method is that it considers the time value of money.

If a project has a profitability index of 1.20, then the project's internal rate of return is

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

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

Which of the following is not a typical cash flow related to equipment purchase and replacement decisions?

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

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

For purposes of capital budgeting, estimated cash inflows and outflows are preferred for inputs into the capital budgeting decision tools.

The discount rate is referred to by all of the following alternative names except the

A well-run organization should perform an evaluation, called a post-audit, of its investment projects before their completion.

Use the following information for questions 112-115. Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Soup Project Nuts Initial investment \ 400,000 \ 600,000 Annual net income 30,000 46,000 Net annual cash inflow 110,000 146,000 Estimated useful life 5 years 6 years Salvage value -0- -0- $\text { The company requires a } 10 \% \text { rate of return on all new investments. }$ $\text { Present Value of an Annuity of } 1$ Periods 9\% 10\% 11\% 12\% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 -The internal rate of return for Project Nuts is approximately

In using the internal rate of return method, the internal rate of return factor was 4.0 and the equal annual cash inflows were $18,000. The initial investment in the project must have been

If a project has a positive net present value, its profitability index will be

Capital expenditure proposals are initially screened by the

If the internal rate of return is used as the discount rate in the net present value calcula-tion, the net present value will be