Exam 10: Capital Budgeting Decisions

(Ignore income taxes in this problem.) Given the following data: The life of the equipment must be:

(Ignore income taxes in this problem.) Crowley Corporation is considering three investment projects: F, G, and H. Project F would require an investment of $21,000, Project G of $49,000, and Project H of $82,000. No other cash outflows would be involved. The present value of the cash inflows would be $21,210 for Project F, $57,820 for Project G, and $95,120 for Project H. Rank the projects according to the profitability index, from most profitable to least profitable.

When considering a number of investment projects, the project that has the shortest payback period does not necessarily have the highest net present value.

(Ignore income taxes in this problem.) 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!

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

(Ignore income taxes in this problem.) The management of Mashiah Corporation is considering the purchase of a machine that would cost $290,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimum pretax return of 13% on all investment projects. -The present value of the annual cost savings of $102,000 is closest to:

If taxes are ignored, all of the following items are included in a discounted cash flow analysis except:

(Ignore income taxes in this problem.) Lajeunesse Corporation uses a discount rate of 19% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 8 years has thus far yielded a net present value of -$127,991. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. -Ignoring any salvage value, to the nearest whole dollar how large would the additional cash flow per year from the intangible benefits have to be to make the investment in the automated equipment financially attractive?

(Ignore income taxes in this problem.) 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.

If a project does not have constant incremental revenues and expenses over its useful life, the simple rate of return will fluctuate from year to year.

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

(Ignore income taxes in this problem.) Burba Inc. is considering investing in a project that would require an initial investment of $200,000. The life of the project would be 5 years. The annual net cash inflows from the project would be $60,000. The salvage value of the assets at the end of the project would be $30,000. The company uses a discount rate of 17%. Required: Compute the net present value of the project.

The project profitability index is used to compare the net present values of two investments that require different amounts of investment funds.

(Ignore income taxes in this problem.) The following data pertain to an investment proposal: The net present value of the proposed investment is closest to:

(Ignore income taxes in this problem.) 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!

(Ignore income taxes in this problem.) The management of Basler Corporation is considering the purchase of a machine that would cost $440,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $128,000 per year. The company requires a minimum pretax return of 12% on all investment projects. Required: Determine the net present value of the project. Show your work!

(Ignore income taxes in this problem.) The following data pertain to an investment project: The internal rate of return is closest to:

(Ignore income taxes in this problem.) Beaver Corporation is investigating the purchase of a new threading machine that costs $18,000. The machine would save about $4,000 per year over the present method of threading component parts, and would have a salvage value of about $3,000 in 6 years when the machine would be replaced. The company's required rate of return is 12%. The machine's net present value is closest to:

(Ignore income taxes in this problem.) 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?

An investment project with a project profitability index of -0.05 has an internal rate of return that is less than the discount rate.