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Exam 12: Capital Budgeting Decisions

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Question 51

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(Ignore income taxes in this problem.)Ostermeyer Corporation is considering a project that would require an initial investment of $247,000 and would last for 7 years.The incremental annual revenues and expenses for each of the 7 years would be as follows: At the end of the project, the scrap value of the project's assets would be $16,000. Required: Determine the payback period of the project.Show your work!

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_TB2627_00 Payback period = In...

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Question 52

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Kanzler Corporation is considering a capital budgeting project that would require an initial investment of $450,000 and working capital of $25,000.The working capital would be released for use elsewhere at the end of the project in 4 years.The investment would generate annual cash inflows of $143,000 for the life of the project.At the end of the project, equipment that had been used in the project could be sold for $10,000.The company's discount rate is 14%.The net present value of the project is closest to:

A) $(27,521)
B) $(37,721)
C) $(52,521)
D) $132,000

E) B) and C)
F) A) and C)

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Question 53

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(Ignore income taxes in this problem.)Choudhury Corporation is considering the following three investment projects: The only cash outflows are the initial investments in the projects. Required: Rank the investment projects using the project profitability index.Show your work

The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:

(Ignore income taxes in this problem.)The management of Harling Corporation is considering the purchase of a machine that would cost $90,504 and would have a useful life of 5 years.The machine would have no salvage value.The machine would reduce labor and other operating costs by $27,000 per year. Required: Determine the internal rate of return on the investment in the new machine.Show your work!

The internal rate of return is the rate of return of an investment project over its useful life.

Moates 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 net present value of the proposed project is closest to:

(Ignore income taxes in this problem.)The management of Winstead Corporation is considering the following three investment projects: The only cash outflows are the initial investments in the projects. Required: Rank the investment projects using the project profitability index.Show your work

If the discount rate is 10%, the net present value of the investment is closest to:

(Ignore income taxes in this problem.)The following data concern an investment project: The working capital will be released for use elsewhere at the conclusion of the project. Required: Compute the project's net present value.

(Ignore income taxes in this problem.) Orbit Airlines is considering the purchase of a new $275,000 maintenance hangar.The new hangar has an estimated useful life of 5 years with an expected salvage value of $50,000.The new hangar is expected to generate cost savings of $90,000 per year in each of the 5 years.A $20,000 increase in working capital will also be needed for this new hangar.The working capital will be released at the end of the 5 years.Orbit's discount rate is 18%.What is the net present value of the new hangar?

The required rate of return is the maximum rate of return that an investment project must yield to the acceptable.

(Ignore income taxes in this problem.)The management of Truelove Corporation is considering a project that would require an initial investment of $321,000 and would last for 7 years.The annual net operating income from the project would be $28,000, including depreciation of $42,000.At the end of the project, the scrap value of the project's assets would be $27,000. Required: Determine the payback period of the project.Show your work!

In preference decisions, the profitability index and internal rate of return methods will rank projects in the same order of preference.

If the present bus is repaired, the present value of the annual cash operating costs associated with this alternative is closest to:

When the internal rate of return method is used to rank investment proposals, the higher the internal rate of return, the more desirable the investment.

(Ignore income taxes in this problem.) The Zingstad Corporation is considering an investment with the following data: Cash inflows occur evenly throughout the year.The payback period for this investment is:

The net present value of Project A is:

The payback period for the investment would be: