Layton Company is replacing an old delivery van with a new van. The following data relate to this investment decision: $\begin{array}{|l|r|} \hline \text { Cost of the new van now } & \$ 20,000 \\ \hline \text { Annual cash operating costs of the new Van } & \$ 6,000 \\ \hline \text { Useful life of the new van } & 6 \text { years } \\ \hline \text { Salvage value of the van at the End of six years } & \$ 2,000 \\ \hline \text { Original cost of the old van two years ago } & \$ 18,000 \\ \hline \text { Book value of the old van now } & \$ 4,000 \\ \hline \text { Salvage value of the old van now } & \$ 1,000 \\ \hline \text { Salvage value of the old van six year from now } & \$ 200 \\ \hline \text { Annual Cash operating Costs of the old van } & \$ 8,000 \\ \hline \end{array}$ The old van is in Class 10 with a maximum CCA rate of $30 \%$ and will last for six more years. The new van is also in Class 10 with a maximum CCA rate of $30 \%$. The income tax rate is $40 \%$, and the company's after-tax cost of capital is $10 \%$. - What is the approximate present value of the after-tax net savings in cash operating costs for all the years? (Do not round your intermediate calculations.)

A) $3,484. B) $5,226. C) $8,711. D) $12,000. A) $3,484. B) $5,226. C) $8,711. D) $12,000.

$\begin{array}{l} \text { Oriental Company has gathered the following data on a proposed investment project: }\\ \begin{array} { | l | r | } \hline \text { Investement in Depreciable Equipment } & \$ 200,000 \\ \hline \end{array} \end{array}$ $\begin{array}{|l|r|} \hline \text { Annual Net Cash Flows } & \$ 50,000 \\ \hline \text { Life of the Equipment } & 10 \text { years } \\ \hline \text { Salvage Value } & -0- \\ \hline \text { Discount Rate } & 10 \%\\\hline \end{array}$ The company uses straight-line depreciation on all equipment. (Ignore income taxes in this problem.) - What would be the net present value of this investment? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

A) ($14,350). B) $77,200. C) $107,228. D) $200,000. A) ($14,350). B) $77,200. C) $107,228. D) $200,000.

Shields Company has gathered the following data on a proposed investment project: $\begin{array}{|l|r|} \hline \text { Investment Required in Equipment } & \$ 400,000 \\ \hline \text { Annual Cash Inflows } & \$ 80,000 \\ \hline \text { Salvage Value } & \$-0- \\ \hline \text { Life of the Investment } & 10 \text { years } \\ \hline \text { Discount Rate } & 10 \% \\ \hline \end{array}$ (Ignore income taxes in this problem.) -The payback period for the investment is closest to which of the following?

A) 0.2 years. B) 1.0 years. C) 3.0 years. D) 5.0 years. A) 0.2 years. B) 1.0 years. C) 3.0 years. D) 5.0 years.

Apex Corp. is planning to buy a production machine costing $\$ 120,000$. This machine's expected useful life is five years, with no residual value. Apex uses a discount rate of $8 \%$ and has calculated the following data pertaining to the purchase and operation of this machine: $\begin{array}{|l|r|} \hline \text { Year } & \text { Estimated Annual Net Cash Inflow } \\ \hline 1 & \$ 50,000 \\ \hline 2 & \$ 40,000 \\ \hline 3 & \$ 20,000 \\ \hline 4 & \$ 20,000 \\ \hline 5 & \$ 20,000 \\ \hline \end{array}$ (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.)

A) $4,779. B) $81,025. C) $50,000. D) $80,000. A) $4,779. B) $81,025. C) $50,000. D) $80,000.

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.) - The net present value of Project B is closest to which of the following? (Do not round your intermediate calculations.)

A) $54,990. B) $77,769. C) $57,268. D) $127,805. A) $54,990. B) $77,769. C) $57,268. D) $127,805.

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 tax savings for all years because of the CCA tax shield? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

A) $7,786. B) $6,975. C) $8,245. D) $8,438. A) $7,786. B) $6,975. C) $8,245. D) $8,438.

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: $\begin{array}{|r|r|} \hline \text { Year } & \text { Estimated Annual Net Cash Inflow } \\ \hline 1 & \$ 60,000 \\ \hline 2 & \$ 30,000 \\ \hline 3 & \$ 20,000 \\ \hline 4 & \$ 20,000 \\ \hline \end{array}$ $\begin{array}{l} \begin{array} { | l | r | } \hline 5 & \$ 20,000 \\ \hline \end{array}\\ \text { (Ignore income taxes in this problem.) } \end{array}$ -What is the payback period for this investment?

A) 2.50 years. B) 2.75 years. C) 3.00 years. D) 5.00 years. A) 2.50 years. B) 2.75 years. C) 3.00 years. D) 5.00 years.

Exam 13: Capital Budgeting Decisions

Layton Company is replacing an old delivery van with a new van. The following data relate to this investment decision: Cost of the new van now \ 20,000 Annual cash operating costs of the new Van \ 6,000 Useful life of the new van 6 years Salvage value of the van at the End of six years \ 2,000 Original cost of the old van two years ago \ 18,000 Book value of the old van now \ 4,000 Salvage value of the old van now \ 1,000 Salvage value of the old van six year from now \ 200 Annual Cash operating Costs of the old van \ 8,000 The old van is in Class 10 with a maximum CCA rate of $30 \%$ and will last for six more years. The new van is also in Class 10 with a maximum CCA rate of $30 \%$ . The income tax rate is $40 \%$ , and the company's after-tax cost of capital is $10 \%$ . - What is the approximate present value of the after-tax net savings in cash operating costs for all the years? (Do not round your intermediate calculations.)

(Multiple Choice)

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Question 61

If the net present value of a project is zero,based on a discount rate of 16%,which of the following statements about the project's internal rate of return is correct?

(Multiple Choice)

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Question 62

AB Company is considering the purchase of a machine that promises to reduce operating costs by the same amount for every year of its six-year useful life.The machine will cost $83,150 and has no salvage value.The machine has a 20% internal rate of return.(Ignore income taxes in this problem.) Required: What is the annual cost savings promised by the machine?

(Essay)

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Question 63

Parks Company is considering an investment proposal in which a working capital investment of $10,000 would be required.The investment would provide cash inflows of $2,000 per year for six years.The working capital would be released for use elsewhere when the project is completed.If the company's discount rate is 10%,what is the investment's net present value? (Ignore income taxes in this problem.)(Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

(Multiple Choice)

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Question 64

Oriental Company has gathered the following data on a proposed investment project: Investement in Depreciable Equipment \ 200,000 Annual Net Cash Flows \ 50,000 Life of the Equipment 10 years Salvage Value -0- Discount Rate 10\% The company uses straight-line depreciation on all equipment. (Ignore income taxes in this problem.) - What would be the net present value of this investment? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

(Multiple Choice)

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Question 65

Bradley Company's required rate of return is 14%.The company has an opportunity to be the exclusive distributor of a very popular consumer item.No new equipment would be needed,but the company would have to use one-fourth of the space in a warehouse it owns.The warehouse cost $200,000 new.The warehouse is currently half-empty,and there are no other plans to use the empty space.In addition,the company would have to invest $100,000 in working capital to carry inventories and accounts receivable for the new product line.The company would have the distributorship for only five years.The distributorship would generate a $17,000 net annual cash inflow.(Ignore income taxes in this problem.) Required: What is the net present value of the project at a discount rate of 14%? Should the project be accepted?

(Essay)

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Question 66

Treads Corporation is considering the replacement of an old machine that is currently being used. The old machine is fully depreciated but can be used by the corporation for five more years. If Treads decides to replace the old machine, Picco Company has offered to purchase the old machine for $60,000. The old machine would have no salvage value in five years. The new machine would be acquired from Hillcrest Industries for $1,000,000 in cash. The new machine has an expected useful life of five years with no salvage value. Due to the increased efficiency of the new machine, estimated annual cash savings of $300,000 would be generated. Treads Corporation uses a discount rate of 12%. (Ignore income taxes in this problem.) - The net present value of the project is closest to which of the following? (Do not round your intermediate calculations.)

(Multiple Choice)

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Question 67

Shields Company has gathered the following data on a proposed investment project: Investment Required in Equipment \ 400,000 Annual Cash Inflows \ 80,000 Salvage Value \- 0- Life of the Investment 10 years Discount Rate 10\% (Ignore income taxes in this problem.) -The payback period for the investment is closest to which of the following?

(Multiple Choice)

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Question 68

Apex Corp. is planning to buy a production machine costing $\$ 120,000$ . This machine's expected useful life is five years, with no residual value. Apex uses a discount rate of $8 \%$ and has calculated the following data pertaining to the purchase and operation of this machine: Year Estimated Annual Net Cash Inflow 1 \ 50,000 2 \ 40,000 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)

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Question 69

The internal rate of return for a project is the discount rate that makes the net present value of the project equal to zero.

(True/False)

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Question 70

At the Bartholomew Company last year,all sales were for cash and all expenses were paid in cash.The tax rate was 30%.If the after-tax net cash inflow from these operations last year was $10,500,and if the total before-tax and tax-deductible cash expenses were $35,000,what must have been the total before-tax cash sales?

(Multiple Choice)

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Question 71

Hanley Company has purchased a machine for $125,000 that will be depreciated on the straight-line basis over a five-year period with no salvage value. The related cash flow from operations is expected to be $45,000 a year. These cash flows from operations occur uniformly throughout the year. (Ignore income taxes in this problem.) -What is the simple rate of return on the initial investment?

(Multiple Choice)

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Question 72

Suppose a machine costs $20,000 now,has an expected life of eight years,and will require a $7,000 overhaul at the end of the third year.If the tax rate is 40%,what would be the after-tax cost of this overhaul?

(Multiple Choice)

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Question 73

If new equipment is replacing old equipment,any salvage received from sale of the old equipment should not be considered in computing the payback period of the new equipment.

(True/False)

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Question 74

A piece of equipment has a cost of $25,000.The equipment will provide cost savings of $4,500 each year for ten years,after which time it will have a salvage value of $2,500.If the company's discount rate is 15%,what is the equipment's net present value? (Ignore income taxes in this problem.)(Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

(Multiple Choice)

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Question 75

The Jason Company is considering the purchase of a machine that will increase revenues by $32,000 each year.Cash outflows for operating this machine will be $6,000 each year.The cost of the machine is $65,000.It is expected to have a useful life of five years with no salvage value.For this machine,what is the simple rate of return? (Ignore income taxes in this problem.)

(Multiple Choice)

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Question 76

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.) - The net present value of Project B is closest to which of the following? (Do not round your intermediate calculations.)

(Multiple Choice)

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Question 77

The present value concept considers both recovery of the original investment and return on the original investment.

(True/False)

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Question 78

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 tax savings for all years because of the CCA tax shield? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

(Multiple Choice)

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Question 79

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.) -What is the payback period for this investment?

(Multiple Choice)

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Question 80

Showing 61 - 80 of 185

If the net present value of a project is zero,based on a discount rate of 16%,which of the following statements about the project's internal rate of return is correct?

The internal rate of return for a project is the discount rate that makes the net present value of the project equal to zero.

Suppose a machine costs $20,000 now,has an expected life of eight years,and will require a $7,000 overhaul at the end of the third year.If the tax rate is 40%,what would be the after-tax cost of this overhaul?

If new equipment is replacing old equipment,any salvage received from sale of the old equipment should not be considered in computing the payback period of the new equipment.

The present value concept considers both recovery of the original investment and return on the original investment.

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

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