Exam 7: Business Decisions, Capital Budgeting and Depreciation

A machine costing $100,000 has a useful lifetime of 15 years with an estimated scrap value of $10,000.What is the book value of the machine at the end of the third year under the constant percentage method of depreciation? (Answer to the nearest dollar)

A company needs a machine that will produce widgets.They have found that there are only three machines available,with the following information: Machine X - Capitalized cost = $73,692 Machine Y - Capitalized cost = $62,135,produces 15% fewer widgets than machine X Machine Z - Capitalized cost = $88,930,produces 20% more widgets than machine X >From a strictly financial point of view,rank the machines in the order: best,2^nd best,worst.

A basic Flabberjabber,which lasts only 1 year,costs $5000 with a scrap value of $750 at the end of 1 year.A deluxe Flabberjabber,which lasts for n-years,can be purchased for $20,000 with scrap value $2500.Assume there are no maintenance costs for either model.Both Flabberjabbers perform exactly the same task.What is the minimum value of n so that a deluxe model would be a better buy than the basic model,if money is worth j₁ = 10%? (Answer to the nearest whole number. )

An investment of $3300 will produce estimated cash flows of $1000 at the end of each of the next four years.Which of the following would be reported as the internal rate of return (IRR)?

A machine is purchased for $100,000 and has a salvage (scrap)value of $10,000 in 20 years.What is the total depreciation for the first 3 years,assuming the constant percentage method? (Answer to the nearest dollar)

An asset was purchased 10 years ago for $150,000.It useful lifetime was estimated to be 15 years,so the asset has 5 years left before being sold for $5000 (scrap value).If this asset is depreciated using the straight-line method,what is the book value of the asset now?

You wish to invest $45,000 and you have three choices: (I)Buy a perpetuity that provides annual payments of $1500,first payment one year from now (II)Receive a single payment of $60,000 in 10 years (III)Receive a single payment of $84,600 in 20 years Rank the three investments from best to worst,based on the internal rate of return (IRR).

An investor is looking at purchasing a storage centre for his business and is evaluating two options.Option 1 is a storage centre that costs $200,000 has an estimated lifetime of 20 years and annual maintenance costs of $1000.Option 2 is a less expensive storage centre that costs $160,000 has an estimated lifetime of 14 years and annual maintenance costs of $2000.What is the absolute difference in the annual cost between Option 1 and Option 2? Assume the required return on his investments are j = 15% and there is no scrap value.(Answer to the nearest dollar).

A company buys a machine and then buys an upgrade which increases its productivity by 100%.The total cost of the machine and the upgrade is $10,000.The upgraded machine has no scrap value at the end of its 10-year estimated lifetime and maintenance is $500 per year.If there was no upgrade,the maintenance would be only $300 per year and the machine's lifetime would be 14 years (scrap value would still be $0).If the upgraded and non-upgraded machines are economically equivalent and if the cost of capital is j₁ = 10%,how much less is the cost of the original (non-upgraded)machine?

A company just bought some equipment for $10,000 today.It is estimated to last 15 years at which time it will be worth $1500.Initially,the company uses the constant percentage method to depreciate the asset.After 5 years,the accountants of the company change their minds and switch to the straight line method.What is the book value of the equipment after 10 years?

A gravel pit is purchased for $200,000 and has expected usable gravel equal to 40,000 truck loads,with yearly production as follows (in truck loads): year 1 = 10,500 ;year 2 = 9,600 ;year 3 = 8,300 ;year 4 = 6,700 ;year 5 = 4,900.When all the usable gravel has been extracted,the land can be sold for $30,000.What is the book value of the land after 3 years?

A machine costs $500,000.It has a useful life of 10 years,at the end of which there will be an additional cost of $50,000 for disposal.Maintenance costs for the machine are anticipated to be $20,000 per year.To the nearest $1000,what is the capitalized cost of the machine,if money is worth j₁ = 10%?

A company needs to buy a machine to produce widgets.They have narrowed their choices to the following 3 machines: Machine X - capitalized cost = $45,480 Machine Y - capitalized cost = $49,970,produces 10% more widgets per year than machine X Machine Z - capitalized cost = $40,900,produces 10% fewer widgets per year than machine X From a financial point of view,which machine should the company buy?

A company has office equipment costing $10,000.The book value of the equipment after two years,using the constant percentage method of depreciation,is $8000.What is the total depreciation at the end of 4 years?

A machine costs $15,000 and has an estimated lifetime of 8 years after which it could be sold for $3000.Annual maintenance costs are M.If the cost of capital is j₁ = 8%,the capitalized cost is $40,914.72.What is the value of M? (Answer to the nearest dollar)

A company has office equipment costing $10,000.The book value of the equipment after one year,using the constant percentage method of depreciation,is $8000.What is the total depreciation at the end of 3 years?

Machine A has a purchase price of $500 and lasts for 10 years at which time it has a salvage value of $50.It produces 500 units per year.Machine B costs $500 and has a scrap value of $100 after 15 years.How many units per year should Machine B produce if a buyer is to be indifferent between the 2 machines if j₁ = 4%? Assume zero maintenance costs and answer to the nearest unit.

A company needs to buy a machine to produce widgets and the annual interest rate is 9%.They have narrowed their choices to the following 3 machines: Machine X - annual cost = $4,005 Machine Y - capitalized cost = $49,970,produces 10% more widgets per year than machine X Machine Z - capitalized cost = $40,900,produces 10% fewer widgets per year than machine X From a financial point of view,which machine should the company buy?

Which of the following statements is (are)true? (I)If an investment project has an internal rate of return (IRR)equal to the cost of capital,the net present value (NPV)for that project must be positive (II)The NPV method implicitly assumes that all cash flows received can be reinvested at the cost of capital (III)An initial investment of $100,000 is made,and the expected cash flows from this investment are $25,000 at the end of each of years one to six inclusive.The IRR on this investment (Rounded to the nearest ½%)is 13%.

Machine A has a purchase price of $500 and lasts for 10 years at which time it has a salvage value of $50.It produces 500 units per year.Machine B costs $500 and has a scrap value of $100 after 15 years.How many units per year should Machine B produce if a buyer is to be indifferent between the 2 machines if j₁ = 4%? Assume zero maintenance costs and answer to the nearest unit.