Exam 11: Long-Term Capital Investmentdecisions

If a project has an internal rate of return of 14 per cent and a positive net present value,which of the following statements is true regarding the discount rate used for the net present value computation?

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

NPV calculations generally require which of the following simplifying assumptions?

Grant Inc.would like to replace an outdated piece of equipment with a newer model.Grant has determined that the new equipment needs to generate annual cash inflows of $10 000 for six years and have a salvage value at the end of year six of $4000.Grant uses a cost of capital equal to 15 per cent when making capital investment decisions.Given this information,which of the following statements is true regarding the cost of the new equipment if,using net present value analysis,Grant decides to purchase the new equipment because it has a positive net present value?

Chester Manufacturing is considering a project that will require an initial investment of $50 000 and is expected to generate future cash flows of $20 000 for years 1 through 3 and $10 000 for years 4 through 7.The project's payback period is:

Finch Corporation purchased an asset costing $10 000.Annual operating cash inflows generated from the asset are expected to be $1610 each year for eight years.No salvage value is expected at the end of the asset's life.Using time value of money tables,which of the following rates is closest to the internal rate of return on the project?

NC Products Inc.is considering investing in one of two projects.Both projects have a net present value of $25 000;however,Project #1 requires an initial investment of $300 000 while Project #2 requires an initial investment of $700 000.Based on this information,which of the following statements is true?

Talley Manufacturing has a project that requires an initial investment of $60 000 and has the following expected stream of cash flows: Year Annual cash flow 1 \4 0000 2 \ 30000 3 \2 0000 Assuming the company's cost of capital is 14 per cent,what is the profitability index for the project?

Vinson Manufacturing requires all capital investment projects to have a payback period of 5 years or less.Vinson is currently considering an equipment purchase that has an initial cost of $90 000.The equipment is expected to have a 10-year life and a salvage value of $5000.Assuming cash flows are equal,what does the annual cash flow generated by the equipment need to be in order to meet the payback period requirements?

Palatial Products Inc.is considering the purchase of a new industrial machine.The estimated cost of the machine is $150 000.The machine is expected to generate annual cash inflows for the next four years as follows: Year Annual cash flow 1 \ 60000 2 \ 50000 3 \ 40000 4 \ 40000 The machine is not expected to have a residual value at the end of its useful life.The company uses a discount rate of 14 per cent. Required: Compute the net present value of the machine.(Ignore income taxes)

Adam's Manufacturing has the following information available regarding one of the projects it is considering: Initial investment \5 00000 Net present value \8 0000 The profitability index of this project is:

Haven Inc.is in the 35 per cent tax bracket and has a 12 per cent rate of return.The after-tax rate of return is:

Which of the following is not a typical cash outflow associated with a capital investment?

A quantitative analysis of capital investment decisions should consider:

What is the difference between a screening decision and a preference decision?

Cardinal Inc.purchased an asset costing $25 000.Annual operating cash inflows generated from the asset are expected to be $6595 each year for five years.No salvage value is expected at the end of the asset's life.Using time value of money tables,which of the following rates is closest to the internal rate of return on the project?

ABC Manufacturing has a project that requires an initial investment of $100 000 and has the following expected stream of cash flows: Year Annual cash flow 1 \ 80000 2 \ 60000 3 \ 20000 Assuming the company's cost of capital is 12 per cent,what is the profitability index for the project?

Buchanan Enterprises is considering investing in a machine that costs $400 000.The machine is expected to generate revenues of $175 000 per year for five years.The machine would be depreciated using the straight-line method over its five-year life and have no salvage value.The company considers the impact of income taxes in all of its capital investment decisions.The company has a 40 per cent income tax rate and desires an after-tax rate of return of 10 per cent on its investment.The net present value of the machine is:

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

Charles Inc.has the following information available regarding one of the projects it is considering: Initial investment \5 0000 PV of cash inflows 55000 The profitability index of this project is: