# (Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that co

(Ignore

income taxes in this problem.) Gull Inc. is considering the acquisition of

equipment that costs $480,000 and has a useful life of 6 years with no salvage

value. The incremental net cash flows that

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would be generated by the equipment

are:

91.

If the discount rate is 10%, the net present value

of the investment is closest to:

A.

$654,709

B.

$234,257

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$415,000

D.

$174,709

92.

The payback period of this investment is closest

to:

A.

3.1 years

B.

2.9 years

C.

5.0 years

D.

3.5 years

(Ignore

income taxes in this problem.) The management of Melchiori Corporation is

considering the purchase of a machine that would cost $310,000, would last for

6 years, and would have no salvage value. The machine would reduce labor and

other costs by $116,000 per year. The company requires a minimum pretax return

of 16% on all investment projects.

93.

The present value of the annual cost savings of

$116,000 is closest to:

A.

$427,460

B.

$696,000

C.

$175,448

D.

$1,041,462

94.

The net present value of the

proposed project is closest to:

A.

$286,179

B.

$386,000

C.

$117,460

D.

$158,431

(Ignore

income taxes in this problem.) Lichty Car Wash has some equipment that needs to

be rebuilt or replaced. The following information has been gathered concerning

this decision:

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Lichty

uses the total-cost approach and a discount rate of 10% in making capital

budgeting decisions. Regardless of which option is chosen, rebuild or replace,

at the end of five years Mr. Lichty plans to close the car wash and retire.

95.

If the new equipment is purchased, the present

value of all cash flows that occur now is:

A.

$(45,000)

B.

$(39,000)

C.

$(37,000)

D.

$(34,000)

96.

If the new equipment is purchased,

the present value of the annual cash operating costs associated with this

alternative is:

A.

$(26,537)

B.

$(15,164)

C.

$(18,463)

D.

$(37,901)

(Ignore income taxes in this problem.) The Finney

Company is reviewing the possibility of remodeling one of its showrooms and

buying some new equipment to improve sales operations. The remodeling would

cost $120,000 now and the useful life of the project is 10 years. Additional

working capital needed immediately for this project would be $30,000; the

working capital would be released for use elsewhere at the end of the 10-year

period. The equipment and other materials used in the project would have a

salvage value of $10,000 in 10 years. Finney’s discount rate is 16%.

97.

The immediate cash outflow required for this

project would be:

A.

$(120,000)

B.

$(150,000)

C.

$(90,000)

D.

$(130,000)

98. What

would the annual net cash inflows from this project have to be in order to

justify investing in remodeling?

A.

$14,495

B.

$35,842

C.

$16,147

D.

$29,158

(Ignore

income taxes in this problem.) Gillaspie, Inc., is considering the purchase of

a machine that would cost $300,000 and would last for 5 years. At the end of 5

years, the machine would have a salvage value of $51,000. The machine would

reduce labor and other costs by $86,000 per year. Additional working capital of

$10,000 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 13% on all investment projects.

99.

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.

-$8,420

B.

$25,170

C.

-$4,570

D.

$0

100.The net

present value of the proposed project is closest to:

A.

$30,155

B.

$47,139

C.

$2,462

D.

$25,585

(Ignore

income taxes in this problem.) Rushforth Manufacturing has $90,000 to invest in

either Project A or Project B. The following data are available on these

projects:

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Both

projects will have a useful life of 6 years. At the end of 6 years, the working

capital investment will be released for use elsewhere. Rushforth’s required

rate of return is 14%.

101.The net

present value of Project A is:

A.

$27,341

B.

$94,000

C.

$71,000

D.

$117,341

102.The

net present value of Project B is:

A.

$57,225

B.

$30,025

C.

$7,225

D.

$13,350

(Ignore

income taxes in this problem.) Meharg Corporation is considering the purchase

of a machine that would cost $120,000 and would last for 5 years. At the end of

5 years, the machine would have a salvage value of $25,000. By reducing labor

and other operating costs, the machine would provide annual cost savings of

$30,000. The company requires a minimum pretax return of 10% on all investment

projects.

103.The present

value of the annual cost savings of $30,000 is closest to:

A.

$18,630

B.

$183,163

C.

$150,000

D.

$113,730

104.The net

present value of the proposed project is closest to:

A.

$14,905

B.

-$6,270

C.

$9,255

D.

$18,730

(Ignore

income taxes in this problem.) Trybus Corporation uses a discount rate of 16%

in its capital budgeting. Partial analysis of an investment in automated

equipment with a useful life of 5 years has thus far yielded a net present

value of -$233,764. 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.

105.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.

$71,400

B.

$37,402

C.

$233,764

D.

$46,753

106.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.

$491,101

B.

$1,461,025

C.

$233,764

D.

$37,402

(Ignore

income taxes in this problem.) The management of Gimenez Corporation is

investigating an investment in equipment that would have a useful life of 7

years. The company uses a discount rate of 17% in its capital budgeting. Good

estimates are available for the initial investment and the annual cash

operating outflows, but not for the annual cash inflows and the salvage value

of the equipment. The net present value of the initial investment and the

annual cash outflows is -$274,265.

107.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.

$39,181

B.

$274,265

C.

$46,625

D.

$69,930

108.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.

$274,265

B.

$46,625

C.

$1,613,324

D.

$823,619

(Ignore

income taxes in this problem.) Burchell Corporation is investigating buying a

small used aircraft for the use of its executives. The aircraft would have a

useful life of 7 years. The company uses a discount rate of 15% in its capital

budgeting. The net present value of the initial investment and the

annual

operating cash cost is -$594,381. Management is having difficulty estimating

the annual benefit of having the aircraft and estimating the salvage value of

the aircraft.

109.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.

$3,962,540

B.

$89,157

C.

$594,381

D.

$1,580,801

110.Ignoring any salvage value, to the nearest

whole dollar how large would the annual benefit have to be to make the

investment in the aircraft financially attractive?

A.

$594,381

B.

$89,157

C.

$84,912

D.

$142,880

(Ignore

income taxes in this problem.) The management of Pattee Corporation is

considering three investment projects-M, N, and O. Project M would require an

investment of $25,000, Project N of $67,000, and Project O of $70,000. The present

value of the cash inflows would be $28,750 for Project M, $73,700 for Project

N, and $79,100 for Project O.

111.The

profitability index of investment project N is closest to:

A.

0.10

B.

0.90

C.

0.09

D.

1.10

112.Rank the

projects according to the profitability index, from most profitable to least

profitable.

A.

O, M, N

B.

O, N, M

C.

M, O, N

D.

N, M, O

(Ignore income taxes in

this problem.) Altro Corporation is considering the following three investment

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projects:

113.The

profitability index of investment project S is closest to:

A.

0.15

B.

1.17

C.

0.83

D.

0.17

114.Rank

the projects according to the profitability index, from most profitable to

least profitable.

A.

S, T, R

B.

R, T, S

C.

T, R, S

D.

T, S, R

(Ignore

income taxes in this problem.) The Crawford Company is pondering an investment

in a machine that costs $350,000, that will have a useful life of eight years,

and that will have a salvage value of $25,000. If this machine is purchased, a

similar, old machine will be sold at a salvage value of $40,000. The

anticipated yearly revenues and expenses associated with the new machine are:

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All

of the revenues and expenses except depreciation are for cash. The company’s

required rate of return is 12%. The annual cash flows occur uniformly

throughout the year.

115.The payback

period, to the nearest tenth of a year, of this investment is:

A.

6.2 years

B.

3.2 years

C.

3.6 years

D.

4.0 years

116.The simple

rate of return, to the nearest tenth of a percent, of this investment is:

A.

18.2%

B.

16.1%

C.

31.3%

D.

27.7%

(Ignore income taxes in

this problem.) Friden Company has just purchased a new piece of equipment with

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the following

characteristics:

117.Assume

straight-line depreciation and no salvage value. The payback period would be:

A.

4.5 years

B.

10 years

C.

2.7 years

D.

8.2 years

118.The simple

rate of return would be approximately:

A.

22.2%

B.

12.2%

C.

11.1%

D.

10%

119.(Ignore

income taxes in this problem.) Tranter, Inc., is considering a project that

would have a ten-year life and would require a $1,200,000 investment in

equipment. At the end of ten years, the project would terminate and the

equipment would have no salvage value. The project would provide net operating

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income each year as

follows:

All

of the above items, except for depreciation, represent cash flows. 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.

120.(Ignore

income taxes in this problem.) Farah Corporation has provided the following

data concerning a

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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.