Exam 11: Capital Budgeting Decisions

Dunay Corporation is considering investing $510,000 in a project. The life of the project would be 4 years. The project would require additional working capital of $24,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $162,000. The salvage value of the assets used in the project would be $41,000. The company uses a discount rate of 10%. Required: Compute the net present value of the project.

The Zinger Corporation is considering an investment that has the following data: Cash inflows occur evenly throughout the year. The payback period for this investment is:

Harrison Corporation is studying a project that would have an eight-year life and would require a $300,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project: The company's required rate of return is 10%. The payback period for this project is closest to:

The following data pertain to an investment proposal: The net present value of the proposed investment is closest to:

Valotta 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. The net present value of the project is closest to:

Farah Corporation has provided the following data concerning a proposed investment project: The company uses a discount rate of 11%. The working capital would be released at the end of the project. Required: Compute the net present value of the project.

Jimba's, Inc., has purchased a new donut maker. It cost $20,000 and has an estimated life of 10 years. The following annual donut sales and expenses are projected: Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period on the new machine is closest to:

A company with $600,000 in operating assets is considering the purchase of a machine that costs $72,000 and which is expected to reduce operating costs by $18,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to:

Villena Corporation is considering a project that would require an investment of $48,000. No other cash outflows would be involved. The present value of the cash inflows would be $52,800. The profitability index of the project is closest to:

Dube Corporation is considering the following three investment projects: Rank the projects according to the profitability index, from most profitable to least profitable.

Shiffler Corporation is contemplating purchasing equipment that would increase sales revenues by $246,000 per year and cash operating expenses by $133,000 per year. The equipment would cost $275,000 and have a 5 year life with no salvage value. The annual depreciation would be $55,000. Required: Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!

The management of Sobus Corporation is considering a project that would require an initial investment of $458,000 and would last for 9 years. The annual net operating income from the project would be $58,000, including depreciation of $48,000. At the end of the project, the scrap value of the project's assets would be $26,000. Required: Determine the payback period of the project. Show your work!

Schoultz Corporation has provided the following data concerning an investment project that it is considering: The life of the project is 4 years. The company's discount rate is 12%. The net present value of the project is closest to:

Dul 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 3 years. The company's discount rate is 7%. The net present value of the project is closest to:

Peter wants to buy a computer which he expects to save him $4,000 each year in bookkeeping costs. The computer will last for five years, and at the end of five years it will have no salvage value. If Peter's required rate of return is 12%, what is the maximum price Peter should be willing to pay for the computer now?

Weilbacher Corporation is considering the purchase of a machine that would cost $240,000 and would last for 8 years. At the end of 5 years, the machine would have a salvage value of $50,000. The machine would reduce labor and other costs by $72,000 per year. The company requires a minimum pretax return of 16% on all investment projects. Required: Determine the net present value of the project. Show your work!

The following data on a proposed investment project have been provided: The working capital would be released for use elsewhere at the end of the project. The net present value of the project is closest to:

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 equipment is rebuilt, the present value of the cash flows that occur now is:

The net present value of an investment project is $28,842 and its project profitability index is 0.1518. The initial investment in this project was:

Mujalli Corporation is considering a capital budgeting project that would require an initial investment of $200,000. The investment would generate annual cash inflows of $64,000 for the life of the project, which is 4 years. At the end of the project, equipment that had been used in the project could be sold for $10,000. The company's discount rate is 9%. The net present value of the project is closest to: