Anne, Inc., is considering the purchase of a machine

Anne, Inc., is considering the purchase of a machine that would cost $200,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $46,000. The machine would reduce labor and other costs by $31,000 per year. Additional working capital of $7,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 8% on all investment projects.

92. The combined present value of the working capital needed at the beginning of the project and the working capital released at the end of the project is closest to:

A. -$5,960 B. -$3,220 C. $33,229 D. $0

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

A. -$21,843

B. $2,997

C. -$413

D. -$223

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94. 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?

A. $67,836 B. $423,974 C. $97,600 D. $52,997

95. Ignoring any cash flows from intangible benefits, to the nearest whole dollar how large would the salvage value of the automated equipment have to be to make the investment in the automated equipment financially attractive?

A. $67,836 B. $423,974 C. $1,390,079 D. $2,649,838

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96. Ignoring any salvage value, to the nearest whole dollar how large would the annual cash inflow have to be to make the investment in the equipment financially attractive?

A. $238,486 B. $54,900 C. $38,158 D. $29,811

97. Ignoring the cash inflows, to the nearest whole dollar how large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive? A. $38,158

B. $781,921 C. $1,490,538 D. $238,486

(Ignore income taxes in this problem.) Bleeker Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 8 years. The company uses a discount rate of 12% in its capital budgeting. The net present value of the initial investment and the annual operating cash cost is -$240,849. Management is having difficulty estimating the annual benefit of having the aircraft and estimating the salvage value of the aircraft.

98. Ignoring the annual benefit, to the nearest whole dollar how large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive?

A. $2,007,075

B. $240,849

C. $28,902

D. $596,161

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(Ignore income taxes in this problem.) Eckels Corporation is considering the following three investment projects:

100. The profitability index of investment project N is closest to: A. 0.18

B. 0.82 C. 1.18 D. 0.15

101. Rank the projects according to the profitability index, from most profitable to least profitable.

A. N,O,M B. O,N,M C. M,N,O D. N,M,O

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102. The profitability index of investment project J is closest to: A. 0.08

B. 0.91 C. 0.09 D. 1.09

103. Rank the projects according to the profitability index, from most profitable to least profitable.

A. J,K,I B. K,J,I C. K,I,J D. I,K,J

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104. The payback period on the new machine is closest to: A. 5 years

B. 2.7 years C. 3.6 years D. 1.4 years

105. The simple rate of return for the new machine is closest to: A. 20%

B. 37.5% C. 27.5% D. 80.0%

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The company uses straight-line depreciation and a $5,000 salvage value. (The company considers salvage value in making depreciation deductions.) Assume cash flows occur uniformly throughout a year.

106. The payback period would be closest to: A. 3.33 years

B. 3.0 years C. 8.0 years D. 2.9 years

107. The simple rate of return would be closest to: A. 30.0%

B. 17.5% C. 18.75% D. 12.5%

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ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:

All of these items, except for depreciation of $100,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company’s required rate of return is 12%.

Required:

a. Compute the project’s net present value.

b. Compute the project’s internal rate of return to the nearest whole percent.

c. Compute the project’s payback period.

d. Compute the project’s simple rate of return.

 

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a. Machine A will cost $25,000 and have a life of 15 years. Its salvage value will be $1,000, and cost savings are projected at $3,500 per year. Compute the machine’s net present value.

b. How much will Prince Company be willing to pay for Machine B if the machine promises annual cash inflows of $5,000 per year for 8 years?

c. Machine C has a projected life of 10 years. What is the machine’s internal rate of return, to the nearest whole percent, if it costs $30,000 and will save $6,000 annually in cash operating costs? Would you recommend purchase? Explain.

 

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The working capital will be released for use elsewhere at the conclusion of the project.

Required:

Compute the project’s net present value.

111. (Ignore income taxes in this problem.) Bradley Company’s required rate of return is 14%. The company has an opportunity to be the exclusive distributor of a very popular consumer item. No new equipment would be needed, but the company would have to use one-fourth of the space in a warehouse it owns. The warehouse cost $200,000 new. The warehouse is currently half-empty and there are no other plans to use the empty space. In addition, the company would have to invest $100,000 in working capital to carry inventories and accounts receivable for the new product line. The company would have the distributorship for only 5 years. The distributorship would generate a $17,000 annual net cash inflow.

Required:

What is the net present value of the project at a discount rate of 14 per cent? Should be project be accepted?

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Required:

Compute the net present value of each project assuming Monson Company uses a 12% discount rate.

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The company uses a discount rate of 10%.

Required:

Compute the net present value of the project.

114. (Ignore income taxes in this problem.) Furner Inc. is considering investing in a project that would require an initial investment of $480,000. The life of the project would be 8 years. The annual net cash inflows from the project would be $120,000. The salvage value of the assets at the end of the project would be $72,000. The company uses a discount rate of 17%.

Required:

Compute the net present value of the project.

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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.

116. (Ignore income taxes in this problem.) Korber Corporation is considering investing $820,000 in a project. The life of the project would be 8 years. The project would require additional working capital of $18,000, which would be released for use elsewhere at the end of the project. The annual net cash inflows would be $246,000. The salvage value of the assets used in the project would be $41,000. The company uses a discount rate of 19%.

Required:

Compute the net present value of the project.

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Required:

Determine the net present value of the project. Show your work!

118. (Ignore income taxes in this problem.) The management of Matza Corporation is considering the purchase of a machine that would cost $370,000, would last for 9 years, and would have no salvage value. The machine would reduce labor and other costs by $63,000 per year. The company requires a minimum pretax return of 10% on all investment projects.

Required:

Determine the net present value of the project. Show your work!

 

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Required:

Determine the net present value of the project. Show your work!

120. (Ignore income taxes in this problem.) AB Company is considering the purchase of a machine that promises to reduce operating costs by the same amount for every year of its 6-year useful life. The machine will cost $83,150 and has no salvage value. The machine has a 20% internal rate of return.

Required:

What are the annual cost savings promised by the machine?

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Determine the internal rate of return on the investment in the new machine. Show your work!