Exam 10: Capital Investment Analysis

Determine the average rate of return for a project that is estimated to yield total income of $250,000 over 4 years, cost $480,000, and has a $20,000 residual value.

The average rate of return for this investment is

The primary advantages of the average rate of return method are its ease of computation and the fact that

Tennessee Corporation is analyzing a capital expenditure that will involve a cash outlay of $109,332.Estimated cash flows are expected to be $36,000 annually for 4 years.The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%, 14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively.The internal rate of return for this investment is

The internal rate of return method of analyzing capital investment proposals uses present value concepts to compute a rate of return expected from the proposals.

The production department is proposing the purchase of an automatic insertion machine.It has identified 3 machines and have asked the accountant to analyze them to determine which of the proposals if any meet or exceed the company's policy of a minimum desired rate of return of 10% using the net present value method.Each of the assets has an estimated useful life of 10 years.The accountant has identified the following data: Which of the investments are acceptable?

What is the present value of $8,000 to be received at the end of 6-years if the required rate of return is 15%? Below is a table for the present value of $1 at compound interest. Below is a table for the present value of an annuity of $1 at compound interest.

In capital rationing, alternative proposals that survive initial and secondary screening are normally evaluated in terms of:

The management of Idaho Corporation is considering the purchase of a new machine costing $430,000.The company's desired rate of return is 10%.The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively.In addition to the foregoing information, use the following data in determining the acceptability of this investment: The net present value for this investment is

Using the tables above, what would be the internal rate of return of an investment that required an investment of $227,460 and would generate an annual cash inflow of $60,000 for the next 5 years?

The rate of earnings is 6% and the cash to be received in 4 years is $20,000.The present value amount, using the following partial table of present value of $1 at compound interest is

Using the following partial table of present value of $1 at compound interest, the present value of $15,000 to be received 3 years hence with earnings at the rate of 6% a year is

Match each definition that follows with the term a-e it defines. -Can be determined by initial cost divided by annual net cash inflow of an investment

The cash payback period for this investment is

Match each definition that follows with the term a-e it defines. -Often referred to as the discounted cash flow method

Using the tables above, what would be the present value of $8,000 to be received 1 year from today, assuming an earnings rate of 12%?

The net present value for this investment is

The methods of evaluating capital investment proposals can be separated into two general groups-present value methods and

Methods that ignore present value in capital investment analysis include the cash payback method.

The process by which management allocates available investment funds among competing investment proposals is called