Exam 25: Capital Investment Analysis

Using the tables above,what would be the present value of $25,000 (rounded to the nearest dollar)to be received 4 years from today,assuming an earnings rate of 10%?

The average rate of return 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

The expected average rate of return for a proposed investment of $800,000 in a fixed asset with a useful life of 4 years,straight-line depreciation,no residual value,and an expected total net income of $360,000 for the 4 years,is

Match each definition that follows with the term (a-f)it defines. -A formal means of analyzing long-range investment decisions

An 8-year project is estimated to cost $400,000 and have no residual value.If the straight-line depreciation method is used and the average rate of return is 5%,determine the estimated annual net income.

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

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

A company is considering purchasing a machine for $21,000.The machine will generate income from operations of $2,000; annual net cash flows from the machine will be $3,500.The payback period for the new machine is 6 years.

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

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%.

Using the following partial table of present value of $1 at compound interest,determine the present value of $50,000 to be received 3 years hence with earnings at the rate of 12% a year: ​ ​

The average rate of return method of capital investment analysis gives consideration to the present value of future cash flows.

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? ​ ​

Tipper Co.is considering a 10-year project that is estimated to cost $700,000 and has no residual value.Tipper seeks to earn an average rate of return of 15% on all capital projects.Determine the necessary average annual income (using straight-line depreciation)that must be achieved on this project for it to be acceptable to Tipper Company.

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

The method of analyzing capital investment proposals that divides the estimated average annual income by the average investment is

Match each definition that follows with the term (a-e)it defines. -Also referred to as capital budgeting

Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows?

The cash payback period for this investment is