Choose the best answer for each of the following separate cases. All analyses are before tax.

Multiple-choice:

a. Bartos, Inc., is planning to purchase a new machine for $40,000. The payback period is expected to be five years. The new machine is expected to produce cash flow from operations of $9,000 a year in each of the next three years and $7,000 in the fourth year. Book depreciation of $5,000 a year will be charged against revenue for each of the five years of the payback period. What is the amount of cash flow from operations that the new machine is expected to produce in the last

(fifth) year of the payback period?

(1) $1,000.

(2) $3,500.

(3) $6,000.

(4) $8,500.

b. The Fudge Company is planning to purchase a new machine, which it will depreciate on a straight-line basis over a 10-year period with no salvage value and a full year's depreciation taken in the year of acquisition. The new machine is expected to produce cash flow from operations of $77,000 a year in each of the next 10 years. The accounting (book value) rate of return on the initial investment is expected to be 12 percent. How much will the new machine cost?

(1) $300,000.

(2) $350,000.

(3) $660,000.

(4) Some other amount.

c. McGraw Company invested in a two-year project with an internal rate of return of 10 percent. The present value of $1 for one period at 10 percent is .909, and the present value of $1 for two periods at 10 percent is .826. The project is expected to produce cash flow from operations of $40,000 in the first year and $60,000 in the second year. How much will the project cost? (Use these rounded PV factors.)

(1) $74,340.

(2) $77,660.

(3) $85,920.

(4) Some other amount.