Apex Corp. is planning to buy a production machine costing $\$ 100,000$. This machine's expected useful life is five years, with no residual value. Apex uses a discount rate of $10 \%$ and has calculated the following data pertaining to the purchase and operation of this machine: $\begin{array}{|r|r|} \hline \text { Year } & \text { Estimated Annual Net Cash Inflow } \\ \hline 1 & \$ 60,000 \\ \hline 2 & \$ 30,000 \\ \hline 3 & \$ 20,000 \\ \hline 4 & \$ 20,000 \\ \hline \end{array}$ $\begin{array}{l} \begin{array} { | l | r | } \hline 5 & \$ 20,000 \\ \hline \end{array}\\ \text { (Ignore income taxes in this problem.) } \end{array}$ - The net present value of this investment is closest to which of the following? (Do not round your intermediate calculations.)

A) $20,444. B) $81,025. C) $50,000. D) $80,000. A) $20,444. B) $81,025. C) $50,000. D) $80,000.

The following information is available on a new piece of equipment: $\begin{array}{|l|r|} \hline \text { Cost of the Equipment } & \$ 21,720 \\ \hline \text { Annual Cash Inflows } & 5,000 \\ \hline \text { Internal Rate of Return } & 16 \% \\ \hline \end{array}$ \[\begin{array} { | l | l| } \hline \text { Required Rate of Return } & 10 \%\\\hline \end{array}\] What is approximately the life of the equipment? (Ignore income taxes in this problem.)

A) 4.3 years. B) 6.0 years. C) 8.0 years. D) It is impossible to determine from the data given. A) 4.3 years. B) 6.0 years. C) 8.0 years. D) It is impossible to determine from the data given.

The Sawyer Company has $\$ 80,000$ to invest and is considering two different projects: $\mathrm { X }$ and $\mathrm { Y }$. The following data are available on the projects: $\begin{array}{|l|r|r|} \hline & \text { Project X } & \text { Project Y } \\ \hline \text { Cost of equipment needed now } & \$ 80,000 & --- \\ \hline \text { Working capital requirement } & -- & \$ 80,000 \\ \hline \text { Annual cash operating inflows } & \$ 23,000 & \$ 18,000 \\ \hline \text { Salvage value in five years } & \$ 6,000 & -- \\ \hline \end{array}$ Both projects will have a useful life of five years; at the end of five years, the working capital will be released for use elsewhere. Sawyer's discount rate is $12 \%$. (Ignore income taxes in this problem.) - What is the net present value of project X? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

A) ($11,708). B) $2,910. C) $5,283. D) $6,314. A) ($11,708). B) $2,910. C) $5,283. D) $6,314.

Westland College has a telephone system that is in poor condition. The system either can be overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: $\begin{array}{|l|r|r|} \hline \text { Purchase Cost New } & \begin{array}{r} \text { Present } \\ \text { System } \end{array} & \begin{array}{r} \text { Proposed New } \\ \text { System } \end{array} \\ \hline \text { Accumulated Depreciation } & \$ 250,000 & \$ 300,000 \\ \hline \text { Overhaul costs needed now } & \$ 240,000 & \\ \hline \text { Annual Cash operating costs } & \$ 230,000 & \\ \hline \text { Salvage value now } & \$ 180,000 & \$ 170,000 \\ \hline \text { Salvage value at the end of eight years } & \$ 160,000 & \$ 165,000 \\ \hline \text { Working capital required } & \$ 152,000 & \$ 200,000 \\ \hline \end{array}$ Westland College uses a $10 \%$ discount rate and the total - cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. (Ignore income taxes in this problem.) - What is the net present value of the alternative of overhauling the present system? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

A) ($1,035,406). B) ($1,190,287). C) ($1,119,378). D) $717,225. A) ($1,035,406). B) ($1,190,287). C) ($1,119,378). D) $717,225.

Eureka Company is considering replacing an old computer with a new computer. The following data relate to this investment decision: $\begin{array}{|l|r|} \hline \text { Cost of the new computer } & \$ 40,000 \\ \hline \text { Annual cash operating costs of the new computer } & \$ 10,000 \\ \hline \text { Working capital needed now for the new computer } & \$ 2,000 \\ \hline \text { Useful life of the new computer } & 6 \text { Years } \\ \hline \text { Salvage value of the new computer at the End of six years } & \$ 3,000 \\ \hline \text { Original cost of the old van two years ago } & \$ 18,000 \\ \hline \text { Salvage value of the old computer now } & \$ 4,000 \\ \hline \text { Salvage value of the old computer six years from now } & \$ 0 \\ \hline \end{array}$ The new computer will belong to Class 10 with a maximum CCA rate of $30 \%$. The income tax rate is also $30 \%$, and the company's after-tax cost of capital is $12 \%$. - What is the approximate present value of the after-tax net annual cash operating inflows for all years?

A) $12,334. B) $23,024. C) $28,780. D) $41,114. A) $12,334. B) $23,024. C) $28,780. D) $41,114.

The Morgan Company has been awarded a six-year contract to provide repair service to a commercial bus line. Morgan Company has gathered the following data associated with the items needed for this contract: $\begin{array}{|l|r|} \hline \text { Cost of the Special equipment needed now } & \$ 300,00 \\ \hline \text { Working capital needed now } & \$ 80,000 \\ \hline \text { Net annual operating cash inflows } & \$ 120,000 \\ \hline \text { Equipment maintenance overhaul at the End of Four Years } & \$ 20,000 \\ \hline \text { Salvage Value of the Equipment in six Years } & \$ 20,000 \\ \hline \end{array}$ The special equipment is in Class 7 with a maximum $15 \% \mathrm { CCA }$ rate. The income tax rate is $40 \%$, and Morgan's after-tax cost of capital is $14 \%$. At the end of six years, the working capital will be released for use elsewhere. - What is the approximate effective cost now of the working capital component of the investment decision? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

A) $0. B) $987. C) $2,000. D) $3,014. A) $0. B) $987. C) $2,000. D) $3,014.

Vernal Company has been offered a seven-year contract to supply a part for the military.After careful study,the company has developed the following estimated data relating to the contract: $\begin{array}{|l|r|} \hline \text { Cost of equipment needed } & \$ 300,000 \\ \hline \text { Working capital needed to caryy inventories } & \$ 50,000 \\ \hline \text { Annual Net Cash Inflow } & \$ 90,000 \\ \hline \end{array}$ \[\begin{array} { | l | r | } \hline \text { Salvage Value of Equiprnent } & \$ 10,000 \\ \hline \end{array}\] The equipment above would be in Class 7 with a 15% CCA rate.The company would take the maximum CCA allowable each year.It is not expected that the contract would be extended beyond the initial contract period.The company's after-tax cost of capital is 10%,and the tax rate is 30%. Required: Use net present value analysis to determine whether or not the contract should be accepted.(Round all calculations to the nearest dollar.)

The following is one approach to answeri

Lambert Manufacturing has $\$ 60,000$ to invest in either Project A or Project B. The following data are available on these projects: $\begin{array}{|l|r|r|} \hline & \text { Project A } & \text { Project B } \\ \hline \text { Cost of equipment needed now } & \$ 120,000 & \$ 70,000 \\ \hline \text { Working capital investment needed now } & & \$ 50,000 \\ \hline \text { Annual net operating cash inflows } & \$ 50,000 & \$ 45,000 \\ \hline \text { Salvage value of equipment in six years } & \$ 15,000 & \\ \hline \end{array}$ Both projects have a useful life of six years. At the end of six years, the working capital investment will be released for use elsewhere. Lambert's discount rate is $14 \%$. (Ignore income taxes in this problem.) -Which of the following statements is(are)correct? I.Project A is acceptable according to the net present value method. II.Project A has an internal rate of return greater than 14%.

A) I only. B) II only. C) Both I and II. D) Neither I nor II. A) I only. B) II only. C) Both I and II. D) Neither I nor II.

Exam 13: Capital Budgeting Decisions

A company needs an increase in working capital of $20,000 in a project that will last four years.The company's tax rate is 30%,and its discount rate is 10%.What is the approximate present value of the working capital to be released at the end of the project? (Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

(Multiple Choice)

4.8/5

(85)

Question 41

Bugle's Bagel Bakery is investigating the purchase of a new bagel-making machine. This machine would provide an annual operating cost savings of $3,650 for each of the next four years. In addition, this new machine would allow the production of one new type of bagel that would result in selling 1,500 dozen more bagels each year. The company earns a contribution margin of $0.90 on each dozen bagels sold. The purchase price of this machine is $13,450, and it will have a four-year useful life. Bugle's discount rate is 14%. (Ignore income taxes in this problem.) -What is the total annual cash inflow from this machine for capital budgeting purposes?

(Multiple Choice)

4.9/5

(77)

Question 42

Purvell Company has just acquired a new machine. Data on the machine follow: Purchase Cost \ 50,000 Annual cost savings \ 15,000 Life of the Machine 8 years The company uses straight-line depreciation and a $\$ 5,000$ salvage value. (The company considers salvage value in making depreciation deductions.) Assume cash flows occur uniformly throughout a year. (Ignore income taxes in this problem.) -The simple rate of return would be closest to which of the following?

(Multiple Choice)

4.9/5

(80)

Question 43

Suppose a machine that costs $80,000 has a useful life of ten years.Also suppose that capital cost allowance (CCA)deduction on the machine is $8,000 in year 4.The tax rate is 40%.What would be the tax savings from the CCA tax shield in year 4?

(Multiple Choice)

4.9/5

(75)

Question 44

Apex Corp. is planning to buy a production machine costing $\$ 100,000$ . This machine's expected useful life is five years, with no residual value. Apex uses a discount rate of $10 \%$ and has calculated the following data pertaining to the purchase and operation of this machine: Year Estimated Annual Net Cash Inflow 1 \ 60,000 2 \ 30,000 3 \ 20,000 4 \ 20,000 5 \ 20,000 (Ignore income taxes in this problem.) - The net present value of this investment is closest to which of the following? (Do not round your intermediate calculations.)

(Multiple Choice)

4.8/5

(81)

Question 45

The following information is available on a new piece of equipment: Cost of the Equipment \ 21,720 Annual Cash Inflows 5,000 Internal Rate of Return 16\% Required Rate of Return 10\% What is approximately the life of the equipment? (Ignore income taxes in this problem.)

(Multiple Choice)

4.8/5

(85)

Question 46

A piece of equipment is in Class 7 with a maximum CCA rate of 15%.The income tax rate is 40%.The tax savings from the CCA tax shield on this equipment for the first year was $1,500.What must have been the original capital cost of the equipment?

(Multiple Choice)

4.7/5

(89)

Question 47

The Sawyer Company has $\$ 80,000$ to invest and is considering two different projects: $\mathrm { X }$ and $\mathrm { Y }$ . The following data are available on the projects: Project X Project Y Cost of equipment needed now \ 80,000 --- Working capital requirement -- \ 80,000 Annual cash operating inflows \ 23,000 \ 18,000 Salvage value in five years \ 6,000 -- Both projects will have a useful life of five years; at the end of five years, the working capital will be released for use elsewhere. Sawyer's discount rate is $12 \%$ . (Ignore income taxes in this problem.) - What is the net present value of project X? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

(Multiple Choice)

5.0/5

(91)

Question 48

The Whitton Company uses a discount rate of 16%.The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows of $10,000 per year for each of the next three years.The machine would have no salvage value.What is the net present value of this machine,rounded to the nearest whole dollar,do not round your intermediate calculations? (Ignore income taxes in this problem.)

(Multiple Choice)

4.8/5

(94)

Question 49

Westland College has a telephone system that is in poor condition. The system either can be overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Purchase Cost New Present System Proposed New System Accumulated Depreciation \ 250,000 \ 300,000 Overhaul costs needed now \ 240,000 Annual Cash operating costs \ 230,000 Salvage value now \ 180,000 \ 170,000 Salvage value at the end of eight years \ 160,000 \ 165,000 Working capital required \ 152,000 \ 200,000 Westland College uses a $10 \%$ discount rate and the total - cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. (Ignore income taxes in this problem.) - What is the net present value of the alternative of overhauling the present system? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

(Multiple Choice)

4.9/5

(79)

Question 50

Eureka Company is considering replacing an old computer with a new computer. The following data relate to this investment decision: Cost of the new computer \ 40,000 Annual cash operating costs of the new computer \ 10,000 Working capital needed now for the new computer \ 2,000 Useful life of the new computer 6 Years Salvage value of the new computer at the End of six years \ 3,000 Original cost of the old van two years ago \ 18,000 Salvage value of the old computer now \ 4,000 Salvage value of the old computer six years from now \ 0 The new computer will belong to Class 10 with a maximum CCA rate of $30 \%$ . The income tax rate is also $30 \%$ , and the company's after-tax cost of capital is $12 \%$ . - What is the approximate present value of the after-tax net annual cash operating inflows for all years?

(Multiple Choice)

4.9/5

(77)

Question 51

Monson Company is considering three investment opportunities with cash flows as described below: (Ignore income taxes in this problem.) Project A: Cash investment now \ 15,000 Cash inflow at the end of 5 years \ 21,000 Cash inflow at the end of 8 years \ 21,000 Project A: Cash investment now \ 11,000 Cash outflow for 5 years \ 3,000 Addition cash inflow at the end of 5 year's \ 21,000 Project A: Cash investment now \ 21,000 Cash inflow at the end of 4 years \ 11,000 Cash outflow for 3 years \ 5,000 Addition cash inflow at the end of 4 years \ 15,000 Required: Calculate the net present value of each project assuming Monson Company uses a 12% discount rate.

(Essay)

4.8/5

(78)

Question 52

Sam Weller is thinking of investing $70,000 to start a bookstore.Sam plans to earn $15,000 cash from the business at the end of each year for the next five years.At the end of the fifth year,Sam plans to sell the business for $110,000 cash.At a 12% discount rate,what is the net present value of the investment? (Ignore income taxes in this problem.)(Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

(Multiple Choice)

4.9/5

(79)

Question 53

The Morgan Company has been awarded a six-year contract to provide repair service to a commercial bus line. Morgan Company has gathered the following data associated with the items needed for this contract: Cost of the Special equipment needed now \ 300,00 Working capital needed now \ 80,000 Net annual operating cash inflows \ 120,000 Equipment maintenance overhaul at the End of Four Years \ 20,000 Salvage Value of the Equipment in six Years \ 20,000 The special equipment is in Class 7 with a maximum $15 \% \mathrm { CCA }$ rate. The income tax rate is $40 \%$ , and Morgan's after-tax cost of capital is $14 \%$ . At the end of six years, the working capital will be released for use elsewhere. - What is the approximate effective cost now of the working capital component of the investment decision? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

(Multiple Choice)

4.8/5

(91)

Question 54

Vernal Company has been offered a seven-year contract to supply a part for the military.After careful study,the company has developed the following estimated data relating to the contract: Cost of equipment needed \ 300,000 Working capital needed to caryy inventories \ 50,000 Annual Net Cash Inflow \ 90,000 Salvage Value of Equiprnent \ 10,000 The equipment above would be in Class 7 with a 15% CCA rate.The company would take the maximum CCA allowable each year.It is not expected that the contract would be extended beyond the initial contract period.The company's after-tax cost of capital is 10%,and the tax rate is 30%. Required: Use net present value analysis to determine whether or not the contract should be accepted.(Round all calculations to the nearest dollar.)

(Essay)

4.7/5

(78)

Question 55

Joe Flubup is the president of Flubup,Inc.He is considering buying a new machine that would cost $25,470.Joe has determined that the new machine promises an internal rate of return of 14%,but Joe has misplaced the paper which tells the annual cost savings promised by the new machine.He does remember that the machine has a projected life of 12 years.Based on these data,what are the annual cost savings to the nearest dollar? (Ignore income taxes in this problem.)

(Multiple Choice)

4.9/5

(82)

Question 56

Suppose an investment has cash inflows of R dollars at the end of each year for two years.What will be the present value of these cash inflows using a 12% discount rate?

(Multiple Choice)

4.8/5

(89)

Question 57

Lambert Manufacturing has $\$ 60,000$ to invest in either Project A or Project B. The following data are available on these projects: Project A Project B Cost of equipment needed now \ 120,000 \ 70,000 Working capital investment needed now \ 50,000 Annual net operating cash inflows \ 50,000 \ 45,000 Salvage value of equipment in six years \ 15,000 Both projects have a useful life of six years. At the end of six years, the working capital investment will be released for use elsewhere. Lambert's discount rate is $14 \%$ . (Ignore income taxes in this problem.) -Which of the following statements is(are)correct? I.Project A is acceptable according to the net present value method. II.Project A has an internal rate of return greater than 14%.

(Multiple Choice)

4.8/5

(84)

Question 58

Horn Corporation is considering investing in a four-year project.Cash inflows from the project are expected to be as follows: Year 1,$2,000; Year 2,$2,200; Year 3,$2,400; Year 4,$2,600.If using a discount rate of 8%,the project has a positive net present value of $500,what was the amount of the original investment? (Ignore income taxes in this problem.)(Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

(Multiple Choice)

4.9/5

(76)

Question 59

A company anticipates a tax-deductible cash expense of $40,000 in year 2 of a project.The company's tax rate is 30%,and its discount rate is 10%.What is the approximate present value of this future cash outflow? Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

(Multiple Choice)

4.8/5

(74)

Question 60

Showing 41 - 60 of 185

Suppose a machine that costs $80,000 has a useful life of ten years.Also suppose that capital cost allowance (CCA)deduction on the machine is $8,000 in year 4.The tax rate is 40%.What would be the tax savings from the CCA tax shield in year 4?

The following information is available on a new piece of equipment: Cost of the Equipment \ 21,720 Annual Cash Inflows 5,000 Internal Rate of Return 16\% Required Rate of Return 10\% What is approximately the life of the equipment? (Ignore income taxes in this problem.)

A piece of equipment is in Class 7 with a maximum CCA rate of 15%.The income tax rate is 40%.The tax savings from the CCA tax shield on this equipment for the first year was $1,500.What must have been the original capital cost of the equipment?

Suppose an investment has cash inflows of R dollars at the end of each year for two years.What will be the present value of these cash inflows using a 12% discount rate?

Managerial Accounting and the Business Environment

Cost Terms,concepts,and Classifications

Cost Behaviour: Analysis and Use

Cost-Volume-Profit Relationships

Systems Design: Job-Order Costing

Systems Design: Process Costing

Activity-Based Costing: A Tool to Aid Decision Making

Variable Costing: A Tool for Management

Budgeting

Standard Costs and Overhead Analysis

Reporting for Control

Relevant Costs for Decision Making

Financial Statement Analysis

Filters