Exam 14: Investment Decision Making

The City Lodge Hotel is appraising a January 1st 20X0 investment of $20,000 in maintenance equipment that will increase accounting profits by $4,000 in 20X0, $6,000 in 20X1 and $8,000 in 20X2. At the end of 20X2, it is estimated the maintenance equipment will be sold for $4,000. What is the projected accounting rate of return for the investment?

The Gorgeous Grand Hotel is considering overhauling and redesigning its main restaurant. Based on the following information, calculate the payback period. Initial investment = $127,500 Investment life = 7 years Increased revenues resulting from investment = $22,000 per year Decreased costs resulting from investment = $8,000 per year Salvage value associated with investment = $12,000 in year 7 Investment's required rate of return = 8%

Use the following information to answer the next two questions. The Debonair Hotel is considering a kitchen investment with a ten year life. The investment will require an initial outlay of $120,780 and provide increased cash inflows of $24,000 per annum and generate increased running cost cash outflows of $6,000 per annum. There will be no salvage value at the end of the life of the investment. -Assuming a 6% cost of capital, what is the net present value of the Debonair Hotel's kitchen investment?

The Moons AFL club has raised $80,000 of long term debt and $120,000 in owners equity capital. The after tax cost of the long term debt is 5% and the club's shareholders expect a 10% return on their investment. What is the club's weighted average cost of capital?

Use discounting tables to determine the value today of an opportunity to receive $3,000 at the end of each of the next five years. Assume an interest rate of 6%.

Use the following information to answer the next two questions. The Slick Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $22,988 and provide increased cash inflows of $24,000 per annum and generate increased cash outflows of $20,000 per annum. There will be no salvage value at the end of the life of the investment. -What is the internal rate of return for the vending machine investment?

Use discounting tables to determine the value today of an opportunity to receive $5,000 at the end of each of the next four years. Assume an interest rate of 8%.

The Serene Hotel is considering investment in some new low maintenance kitchen equipment that will increase the range of meals that its restaurant can offer. Based on the following information, calculate the payback period. Initial investment = $90,000 Investment life = 6 years Increased revenues resulting from investment = $16,000 per year Decreased costs resulting from investment = $4,000 per year Salvage value associated with investment = $10,000 in year 6 Investment's required rate of return = 13%

Which of the following statements is true?

Use the following information to answer the next two questions. The Premier Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $16,000 and provide increased cash inflows of $17,000 per annum and generate increased cash outflows of $14,000 per annum. The vending machine will be sold off for $2,000 in eight year's time. -Assuming a 6% cost of capital, what is the net present value of the Premier Hotel's vending machine investment?

Use the following information to answer the next two questions. The Slick Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $22,988 and provide increased cash inflows of $24,000 per annum and generate increased cash outflows of $20,000 per annum. There will be no salvage value at the end of the life of the investment. -Assuming a 6% cost of capital, what is the net present value of the Slick Hotel vending machine investment?

Use the following information to answer the next two questions. The Slick Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $22,000 and provide increased cash inflows of $24,000 per annum and generate increased cash outflows of $20,000 per annum. The vending machine will be sold off for $3,000 in eight year's time. -What is the payback period for the vending machine investment?

Use discounting tables to determine today's value of an investment that will provide a dividend of $1,000 at the end of each of the next five years and will be sold for $10,000 in five years time. Assume the required rate of return is 8%.

Which of the following statements is true?

A positive net present value means that the:

The WhiteCliffs Resort accountant has developed the following estimates relating to a proposed replacement of a boiler. Cost of new boiler \ 60,000 Annual cash savings from new equipment \ 13,000 Life of the new equipment 6 years Equipment salvage value \ 4,000 WhiteCliffs Resort cost of capital 7\% What is the net present value of the proposed investment?

Use the following information to answer the next two questions. The Debonair Hotel is considering a kitchen investment with a ten year life. The investment will require an initial outlay of $120,780 and provide increased cash inflows of $24,000 per annum and generate increased running cost cash outflows of $6,000 per annum. There will be no salvage value at the end of the life of the investment. -What is the internal rate of return for the Debonair Hotel's kitchen investment?

Use discounting tables to determine the value today of an opportunity to receive $4,500 at the end of each of the next six years. Assume an interest rate of 7%.

The SoothingSpa Resort is appraising a January 1st 20X0 investment of $32,000 that will increase cash inflows by $8,000 in 20X0, $9,000 in 20X1, $9,000 in 20X2, $12,000 in 20X3 and $8,000 in 20X4. At the end of 20X4, it is estimated the investment can be salvaged for $6,000. What is the payback period for the investment?

Use the following information to answer the next two questions. The Premier Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $16,000 and provide increased cash inflows of $17,000 per annum and generate increased cash outflows of $14,000 per annum. The vending machine will be sold off for $2,000 in eight year's time. -What is the payback period for the vending machine investment?