Exam 19: Capital Investment

Dunkin, Inc., is considering the purchase of production equipment that costs $300,000.The equipment is expected to generate an annual cash flow of $100,000 and have a useful life of five years with no salvage value.The firm's cost of capital is 14 percent.The company uses the straight-line method of depreciation with no mid-year convention.Ignore income taxes. Payback for the project is

A machine with a book value of $60,000 could be sold for $80,000.The corporation that owns the machine has taxable income of $670,000 and a 40 percent tax rate.What would be the tax on the sale of the machine?

The following information pertains to an investment: Ignoring income taxes, the present value of the salvage value (rounded) is

Barker Production Company is considering the purchase of a flexible manufacturing system.The after-tax cash benefits/savings associated with the system are as follows: The system will cost $750,000 and will last ten years.The company's cost of capital is 10 percent. Required:

Springer Company is considering the purchase of a new machine for $80,000.The machine would generate an annual cash flow before depreciation and taxes of $28,778 for five years.At the end of five years, the machine would have no salvage value.The company's cost of capital is 12 percent.The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the annual net after-tax cash flow (rounded)?

A firm is considering a project requiring an investment of $200,000.The project would generate an annual cash flow of $55,478 for the next five years.The company uses the straight-line method of depreciation with no mid-year convention.Ignore income taxes.The approximate internal rate of return for the project is

Valley Company is considering the purchase of production equipment that costs $800,000.The equipment is expected to generate an annual cash flow of $250,000 and have a useful life of five years with no salvage value.The firm's cost of capital is 12 percent.The straight-line method with no mid-year convention is used. Ignoring income taxes, the net present value of the project is

What are the differences that affect capital investment decisions regarding advanced technology and environmental considerations?

A firm is considering a project with an annual cash flow of $240,000.The project would have an 8-year life, and the company uses a discount rate of 12 percent.Ignoring income taxes, what is the maximum amount the company could invest in the project and have the project still be acceptable (rounded)?

Clemens Company is considering the purchase of a new machine for $160,000.The machine would generate an annual cash flow before depreciation and taxes of $62,588 for four years.At the end of four years, the machine would have no salvage value.The company's cost of capital is 12 percent.The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the net present value for the machine?

Julius Company is considering the purchase of a new machine for $100,000.The machine generates annual revenues of $62,500 and annual expenses of $37,500, which includes $7,500 of depreciation.What is the payback period in years on the machine approximated to one decimal point?

Hunziker Company is considering the purchase of wood cutting equipment.Data on the equipment are as follows: The company uses the straight-line method of depreciation with no mid-year convention. What is the accounting rate of return on original investment rounded to the nearest percent, assuming no taxes are paid?

A corporation with taxable income of $400,000 and a 40 percent tax rate is considering the sale of an asset.The original cost of the asset is $20,000, with $12,000 of it depreciated.How much total after-tax cash will be produced from the sale of the asset for $24,000?

The present value of $20,000 to be received five years from now and earning a 6 percent return (rounded) is

Which of the following methods uses income instead of cash flows?

_______________ are projects that if accepted or rejected, do NOT affect the cash flows of projects.

Harrison Company was considering the purchase of equipment.Details on the equipment are as follows: What is the payback period in years, assuming no taxes are paid?