Exam 12: Capital Investment Decisions and the Time Value of Money

The managerial accountant at New Jewelry considers an investment in a gem cleaning piece of equipment that may increase the value of gems because it fills in the fractures of lower-value gems.The initial cost of the equipment is $1,480,000;whereas the annual net cash inflow is $425,000.The managerial accountant projects a useful life of 13 years.The resale value of the equipment is forecasted at $450,000.Calculate the annual depreciation expense.What is the expected payback period of this investment?

(Present value tables are needed. )Family Fun Park is evaluating the purchase of a new game to be located on its Midway.Family Fun has narrowed their choices down to two: the Wacky Water Race game and the Whack-A-Mole game.Financial data about the two choices follows. What is the total present value of future cash inflows and residual value from the Wacky Water Race game?

(Present value tables required)Income from an apartment building you own totals $260,000 per year.You plan on selling the building and retiring to France in 12 years.Assuming you can invest the income from the building each year at 3%,how much money will you have on which to retire?

The Toth Company bought a new specialty machine that cost $100,000 with a 4-year life with no residual value.The company plans to generate annual cash inflows of $30,000 each year for 4 years.Calculate the accounting rate of return.

The term ________ is best described as "a stream of equal installments made at equal time intervals."

The Hanna Company uses straight-line depreciation and is considering a capital expenditure of which the following relevant cash flow data have been estimated: Total operating income from the asset over the 3-year period is

The accounting rate of return is a measure of profitability computed by dividing the average annual operating income from an asset by the initial amount invested in the asset.

The Hanna Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated: The accounting rate of return is closest to

(Present value tables are required. )Mantua Motors is evaluating a capital investment opportunity.This project would require an initial investment of $38,000 to purchase equipment.The equipment will have a residual value at the end of its life of $3,000.The useful life of the equipment is 5 years.The new project is expected to generate additional net cash inflows of $12,000 per year for each of the five years.Mantua Motors' required rate of return is 14%.The net present value of this project is closest to

The Warren Company is considering investing in two alternative projects: What is the payback period for Project 2?

(Present value tables are needed. )Cleveland Cove Enterprises is evaluating the purchase of an elaborate hydraulic lift system for all of its locations to use for the boats brought in for repair.The company has narrowed their choices down to two: the B14 Model and the F54 Model.Financial data about the two choices follows. What is the net present value of the F54 Model?

Speedy Print Shop bought a new high-speed photo copier to offer customers the opportunity to make high-quality copies out of their digital pictures.Its useful life is 6 years.The copier cost $7,740 and will generate annual cash inflows of $2,150.The residual value of the copier is $1,320.The payback period in years is closest to

(Present value tables required)Assuming an interest rate of 10%,if you invest a lump sum of $5,000 now,the balance of your investment in 7 years will be closest to

Investments with longer payback periods are more desirable,all else being equal.

(Present value tables are needed. )Family Fun Park is evaluating the purchase of a new game to be located on its Midway.Family Fun has narrowed their choices down to two: the Wacky Water Race game and the Whack-A-Mole game.Financial data about the two choices follows. Using the net present value model,which alternative(s)should Family Fun Park select?

Runnin' Wild Family Fun Center bought new go-karts for its recreation facility.The useful life is 6 years.The go-karts had a total cost of $5,100 and will generate $1,700 total cash inflows each year for the life of the go-karts.The residual value of the go-karts is $650.The payback period in years is closest to

The three factors that affect the time value of money are principal,number of periods,and the interest rate.

Assuming an interest rate of 6%,the present value of $18,000 received at the end of each year for 6 years would be closest to

"Management's minimum desired rate of return on an investment" is best described by which of the following terms?

When computing the present value of a future sum,the interest rate must always be expressed as an annual rate.