Exam 10: Capital Investment Analysis

All of the following qualitative considerations may impact upon capital investment analysis except

The production department is proposing the purchase of an automatic insertion machine.It has identified 3 machines and has asked the accountant to analyze them to determine the best cash payback.

The cash payback period for this investment is

Average rate of return equals average investment divided by estimated average annual income.

The production department is proposing the purchase of an automatic insertion machine.It has identified 3 machines, each with an estimated life of 10 years.Which machine offers the best internal rate of return?

The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as 1 methods that ignore present value and 2 present values methods.

The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called capital investment analysis.

A project has estimated annual cash flows of $95,000 for 4 years and is estimated to cost $260,000.Assume a minimum acceptable rate of return of 10%.Using the following tables determine the a net present value of the project and b the present value index, rounded to two decimal places. 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.

Norton Company is considering a project that will require an initial investment of $750,000 and will return $200,000 each year for 5- years. a If taxes are ignored and the required rate of return is 9%, what is the project's net present value? b Based on this analysis, should Norton Company proceed with the project? 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.

A $550,000 capital investment proposal has an estimated life of 4 years and no residual value.The estimated net cash flows are as follows:

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

The rate of earnings is 12% and the cash to be received in 2 years is $10,000.Determine the present value amount, using the following partial table of present value of $1 at compound interest:

Heidi Company is considering the acquisition of a machine that costs $420,000.The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $120,000, and annual operating income of $83,721.What is the estimated cash payback period for the machine?

Match each definition that follows with the term a-f it defines. -The length of time it will take to recover through cash inflows the dollars of a capital outlay

A series of equal cash flows at fixed intervals is termed an

Match each definition that follows with the term a-e it defines. -Average income as a percentage of average investment

A company is planning to purchase a machine that will cost $24,000, have a 6-year life, and have no salvage value.The company expects to sell the machine's output of 3,000 units evenly throughout each year.Total income over the life of the machine is estimated to be $12,000.The machine will generate net cash flows per year of $6,000.The payback period for the machine is 12 years.

Decisions to install new equipment, replace old equipment, and purchase or construct a new building are examples of

A company is planning to purchase a machine that will cost $24,000, have a 6-year life, and have no salvage value.The company expects to sell the machine's output of 3,000 units evenly throughout each year.Total income over the life of the machine is estimated to be $12,000.The machine will generate net cash flows per year of $6,000.The average rate of return for the machine is 50%.

The present value index is computed using which of the following formulas?