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Exam 25: Capital Investment Analysis

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Question 81

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Using the tables above,what is the present value of $6,000 to be received at the end of each of the next 4 years,assuming an earnings rate of 10%?

A) $20,790
B) $19,020
C) $14,412
D) $25,272

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

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Question 82

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The net present value for this investment is

A) $(118,145)
B) $118,145
C) $19,875
D) $(19,875)

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

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Question 83

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A present value index can be used to rank competing capital investment proposals when the net present value method is used.

The expected average rate of return for a proposed investment of $6,000,000 in a fixed asset,using straight-line depreciation,with a useful life of 20 years,no residual value,and an expected total net income of $12,000,000 over the 20 years is

Which of the following is not an advantage of the average rate of return method?

The average rate of return method of analyzing capital budgeting decisions measures the average rate of return from using the asset over its entire life.

Norton Company is considering a project that will require an initial investment of $750,000 and will return $200,000 each year for 5- years. (a)If taxes are ignored and the required rate of return is 9%,what is the project's net present value? (b)Based on this analysis,should Norton Company proceed with the project? 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. ​

The expected average rate of return for a proposed investment of $650,000 in a fixed asset,with a useful life of 4 years,straight-line depreciation,no residual value,and an expected total net income of $240,000 for the 4 years,is

The cash payback period for this investment is

An analysis of a proposal by the net present value method indicated that the present value of future cash inflows exceeded the amount to be invested.Which of the following statements best describes the results of this analysis?

Project A requires an original investment of $50,000.The project will yield cash flows of $15,000 per year for 7 years.Project B has a calculated net present value of $13,500 over a 4-year life.Project A could be sold at the end of 4 years for $25,000.(a)Using the table below,determine the net present value of Project A over a 4-year life with salvage value assuming a minimum rate of return of 12%.(b)Which project provides the greatest net present value? 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.

Brunette Company is contemplating investing in a new piece of manufacturing machinery.The amount to be invested is $180,000.The present value of the future cash flows generated by the project is $163,000.Should they invest in this project?

The management of California Corporation is considering the purchase of a new machine costing $400,000.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 present value index for this investment is

The expected period of time that will elapse between the date of a capital investment and the complete recovery in cash of the amount invested is called the discount period.

Care must be taken involving capital investment decisions,since normally a long-term commitment of funds is involved and operations could be affected for many years.

Proposals L and K each cost $600,000,have 6-year lives,and have expected total cash flows of $720,000.Proposal L is expected to provide equal annual net cash flows of $170,000,while the net cash flows for Proposal K are as follows: ​ ​ Determine the cash payback period for each proposal.Round your answers to two decimal places.

Which of the following is not considered a complicating factor in capital investment decisions?

The method of analyzing capital investment proposals in which the estimated average annual income is divided by the average investment is the average rate of return method.

By converting dollars to be received in the future into current dollars,the present value methods take into consideration that money

In calculating the net present value of an investment in equipment,the required investment and its residual value should be subtracted from the present value of all future cash inflows.