Exam 11: Capital Budgeting Decisions

Chee Corporation has gathered the following data on a proposed investment project: The company uses straight-line depreciation. Assume cash flows occur uniformly throughout a year except for the initial investment. The net present value on this investment is closest to:

The investment required for the project profitability index should:

Bullinger Corporation has provided the following data concerning an investment project that it is considering: The net present value of the project is closest to:

The management of Helberg Corporation is considering a project that would require an investment of $203,000 and would last for 6 years. The annual net operating income from the project would be $103,000, which includes depreciation of $30,000. The scrap value of the project's assets at the end of the project would be $23,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:

The management of Cantell Corporation is considering a project that would require an initial investment of $47,000. No other cash outflows would be required. The present value of the cash inflows would be $55,930. The profitability index of the project is closest to:

The management of Moya Corporation is investigating purchasing equipment that would cost $336,000 and have an 8 year life with no salvage value. The equipment would allow an expansion of capacity that would increase sales revenues by $288,000 per year and cash operating expenses by $164,000 per year. Required: Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!

Pro-Mate, Inc. is a producer of athletic equipment. The company is considering the purchase of a machine to produce baseball bats. The machine will cost $60,000 and have a 10-year useful life. The following annual revenues and expenses are projected: The machine will have no salvage value. Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period for the new machine is about:

Flamio Corporation is considering a project that would require an initial investment of $210,000 and would last for 6 years. The incremental annual revenues and expenses for each of the 6 years would be as follows: At the end of the project, the scrap value of the project's assets would be $24,000. Required: Determine the payback period of the project. Show your work!

Alesi Corporation is considering purchasing a machine that would cost $243,600 and have a useful life of 8 years. The machine would reduce cash operating costs by $76,125 per year. The machine would have a salvage value of $60,900 at the end of the project. Required: a. Compute the payback period for the machine. b. Compute the simple rate of return for the machine.

Baldock Inc. is considering the acquisition of a new machine that costs $420,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are: Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period of this investment is closest to:

Bevans Corporation is considering a capital budgeting project that would require an initial investment of $190,000. The investment would generate annual cash inflows of $58,000 for the life of the project, which is 4 years. The company's discount rate is 7%. The net present value of the project is closest to:

In the payback method, depreciation is deducted from net operating income when computing the annual net cash flow.

The Sawyer Corporation has $80,000 to invest and is considering two different projects, X and Y. The following data are available on the projects: Both projects will have a useful life of 5 years; at the end of 5 years, the working capital will be released for use elsewhere. Sawyer's discount rate is 12%. The net present value of project X is closest to:

Discounted cash flow techniques do not take into account recovery of initial investment.

Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The following information has been gathered relative to this decision: Carlson uses the total cost approach to net present value analysis and a discount rate of 12%. Regardless of which option is chosen, rebuild or replace, at the end of five years Carlson Manufacturing will have no future use for the equipment. If the new equipment is purchased, the present value of the cash flows that occur now is:

Allen College has a telephone system that is in poor condition. The system can be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Allen College uses a 12% discount rate and the total cost approach to net present value analysis. Both alternatives are expected to have a useful life of eight years. The net present value of the alternative of replacing the present system with the proposed new system is closest to:

Zabarkes Corporation is considering a capital budgeting project that would require an initial investment of $640,000 and working capital of $79,000. The working capital would be released for use elsewhere at the end of the project in 3 years. The investment would generate annual cash inflows of $205,000 for the life of the project. At the end of the project, equipment that had been used in the project could be sold for $29,000. The company's discount rate is 7%. The net present value of the project is closest to:

Allen College has a telephone system that is in poor condition. The system can be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Allen College uses a 12% discount rate and the total cost approach to net present value analysis. Both alternatives are expected to have a useful life of eight years. The net present value of the alternative of overhauling the present system is closest to:

Vinup Corporation has provided the following data concerning an investment project that it is considering: The working capital would be released for use elsewhere at the end of the project in 4 years. The company's discount rate is 13%. The net present value of the project is closest to:

The Sawyer Corporation has $80,000 to invest and is considering two different projects, X and Y. The following data are available on the projects: Both projects will have a useful life of 5 years; at the end of 5 years, the working capital will be released for use elsewhere. Sawyer's discount rate is 12%. The net present value of project Y is closest to: