Question 1

An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next 4- years.  What is the investment's internal rate of return? 
Below is a table for the present value of $1 at compound interest.  
Below is a table for the present value of an annuity of $1 at compound interest.

Accepted Answer

The answer of An investment of $185,575 is expected to...

Question 2

Identify four capital investment evaluation methods discussed in the chapter and discuss the strengths and weaknesses of each method.

Accepted Answer

The answer of Identify four capital investment evaluation methods discussed...

Question 3

Below is a table for the present value of $1 at compound interest.  Below is a table for the present value of an annuity of $1 at compound interest. 
Using the tables above, what would be the present value of $15,000 to be received at the end of each of the next 2 years, assuming an earnings rate of 6%?

Accepted Answer

A)  $27,495 
B)  $26,040 
C)  $30,000 
D)  $25,350

Question 4

If a proposed expenditure of $70,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 2.5 years.

Accepted Answer

A) True 
 B)False

Question 5

The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment:  The net present value for this investment is

Accepted Answer

A)  $16,400 
B)  $25,200 
C)  $(99,600) 
D)  $(126,800)

Question 6

Dickerson Co. is evaluating a project requiring a capital expenditure of $810,000. The project has an estimated life of 4 years and no salvage value. The estimated net income and net cash flow from the project are as follows:  
The company's minimum desired rate of return is 12%. The present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is 0.893, 0.797, 0.712, and 0.636, respectively. 
Determine the average rate of return on investment, including the effect of depreciation on the investment.

Accepted Answer

The answer of Dickerson Co. is evaluating a project requiring...

Question 7

If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal is less than the rate used in the analysis.

Accepted Answer

A) True 
 B)False

Question 8

An anticipated purchase of equipment for $520,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows:  What is the cash payback period?

Accepted Answer

A)  5 years 
B)  4 years 
C)  6 years 
D)  3 years

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

The internal rate of return method of analyzing capital investment proposals uses present value concepts to compute a rate of return expected from the proposals.

Accepted Answer

A) True 
 B)False

Question 11

Hayden Company is considering the acquisition of a machine that costs $675,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $150,000, and annual operating income of $87,500. What is the estimated cash payback period for the machine?

Accepted Answer

A)  3.5 years 
B)  4 years 
C)  4.5 years 
D)  5 years

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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?

Accepted Answer

A)  Machine B only 
B)  Machine C only 
C)  Machines A and B 
D)  Machine A only

Question 14

For Years 1-5, a proposed expenditure of $500,000 for a fixed asset with a 5-year life has expected net income of $40,000, $35,000, $25,000, $25,000, and $25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and $75,000, respectively. The cash payback period is 5 years.

Accepted Answer

A) True 
 B)False

Question 15

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:

Accepted Answer

A)  $37,550 
B)  $31,800 
C)  $35,600 
D)  $39,850

Question 16

Only managers are encouraged to submit capital investment proposals because they know the processes and are able to match investments with long-term goals.

Accepted Answer

A) True 
 B)False

Question 17

The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $200,000 for the 5 years. The expected average rate of return on investment is 50%.

Accepted Answer

A) True 
 B)False

Exam 11: Capital Investment Analysis

Identify four capital investment evaluation methods discussed in the chapter and discuss the strengths and weaknesses of each method.

If a proposed expenditure of $70,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 2.5 years.

If in evaluating a proposal by use of the net present value method there is an excess of the present value of future cash inflows over the amount to be invested, the rate of return on the proposal is less than the rate used in the analysis.

An anticipated purchase of equipment for $520,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: What is the cash payback period?

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 internal rate of return method of analyzing capital investment proposals uses present value concepts to compute a rate of return expected from the proposals.

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

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?

For Years 1-5, a proposed expenditure of $500,000 for a fixed asset with a 5-year life has expected net income of $40,000, $35,000, $25,000, $25,000, and $25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and $75,000, respectively. The cash payback period is 5 years.

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:

Only managers are encouraged to submit capital investment proposals because they know the processes and are able to match investments with long-term goals.

The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $200,000 for the 5 years. The expected average rate of return on investment is 50%.