Exam 11: Long-Term Capital Investmentdecisions

When using the NPV method for a particular investment decision,if the present value of the cash inflows is equal to the present value of the cash outflows,then:

The internal rate of return (IRR)of a project can be calculated using all of the following except:

A local company requires all capital investments to generate a minimum internal rate of return of 14 per cent.The company is currently considering an investment that is expected to generate annual cash inflows of $40 000 for 5 years.The cost of this investment is $150 000. Required: Would you recommend the company make this investment? Why or why not? Show computations and ignore income taxes.

Blue Fin Inc.requires all capital investments to generate a minimum internal rate of return of 15 per cent.The company is currently considering an investment that is expected to generate annual cash inflows of $10 000 for six years.The cost of this investment is $30 000. Required: Would you recommend the company make this investment? Why or why not? Show computations and ignore income taxes.

Triangle Catering is considering investing in new equipment that costs $100 000.The equipment would be depreciated using the straight-line method with no half-year convention over five years and have no salvage value.If the company has a 35 per cent income tax rate and desires an after-tax rate of return of 15 per cent on investments,the total present value of the depreciation tax shield is:

The time value of money concept focuses on:

A company choosing between two or more acceptable investment alternatives is called a:

What is the difference between the discount rate used for net present value computations and the internal rate of return? Explain your answer.

The IRR method assumes that cash flows are reinvested at:

If the net present value of an investment is negative,then:

Which of the following statements comparing the NPV and IRR methods is false?

Assuming taxes are a consideration,which of the following would not have an overall positive effect on cash inflows when a company is computing the net present value of a potential capital investment?

Answer the following questions with respect to a 'depreciation tax shield'. A. What is a 'depreciation tax shield'? B. What does it generate - a cash inflow or outflow? C. Can it impact the net present value of a capital investment? Why or why not?

Which of the following does not require time value of money computations in order to solve?

The length of time needed for a long-term project to recapture its initial investment amount is called the:

Pristine Products is considering the purchase of a new machine.The estimated cost of the machine is $25 000.The machine is expected to generate annual cash inflows for the next four years as follows: Year Annual cash flow 1 \ 15000 2 \ 10000 3 \ 5000 4 \ 5000 The machine is not expected to have a residual value at the end of its useful life.If the company uses a discount rate of 12 per cent,what is the expected net present value of the machine? (ignore taxes)

When using the NPV method,the interest rate used to discount cash flows should not be thought of as the:

Blossoms Inc. ,a local florist,is considering replacing its current refrigerator used for storing flowers with a larger one.The estimated cost of the new refrigerator will be $30 000.Using a discount rate of 15 per cent,the company calculates a net present value for the new refrigerator of $6000.Based on this information,which of the following statements is true?

Which of the following expenses for accounting purposes generates an after-tax cash inflow for purposes of net present value computations?

The IRR method assumes that cash inflows associated with a particular capital investment decision are: