Multiple choice. (CPA, adapted) The Apex Company is evaluating a capital budgeting pro¬

posal for the current year. The relevant data are as follows:

Present Value of an Annuity Year of $1 in Arrears at 15%

1 2

3 4

5 6

$0,870 1.626 2.284 2.856 3.353 3.785 The initial equipment investment would be $36,000. Apex would amortize the equipment for accounting purposes on a straight-line basis over six years with a zero terminal disposal price. The before-tax annual cash inflow arising from this investment is $12,000. The income tax rate is 40%, and income tax is paid the same year as incurred. The capital investment quali¬

fies for a capital cost allowance rate of 20%, declining balance. The after-tax required rate of return is 15%. Choose the best answer for each question and show your computations.

1. What is the after-tax accrual accounting rate ofreturn on Apex’s initial equipment investment?

(a) 10%,

(b) 162/3%,

(c) 262/3%,

(d) 331/3%.

2. What is the after-tax pavback period (in years) for Apex’s capital budgeting proposal?

(a) 5,

(b) 2.6,

(c) 3,

(d) 2.'

3. What is the net present value ofApex’s capital budgeting proposal?

(a) $(7,290),

(b) $(1,056),

(c) $7,850,

(d) $11,760.

4. How much would Apex have had to invest five years ago at 15% compounded annually to have $36,000 now?

(a) $12,960,

(b) $17,892,

(c) $20,592,

(d) cannot be determined from the information given.