1. A company is considering replacing an old machine used in its production process. The old machine is fully depreciated and has no salvage value. The new machine would cost $750,000 and has an estimated useful life of six years. Depreciation expense will be $120,000 per year. At the end of year six, the equipment will be sold at book value. The company pays income taxes at a rate of 40%. Which of the choices represents the cash flow associated with the purchase of the equipment?

A.) Year 0: ($450,000) Years 1-5: $72,000 Year 6: $102,000

B.) Year 0: ($450,000) Years 1-5: $72,000 Year 6: $102,000

C.) Year 0: ($750,000) Years 1-5: $48,000 Year 6: $78,000

D.) Year 0: ($750,000) Years 1-5: $48,000 Year 6: $66,000

2.) Calculate the Internal Rate of Return for the following cash flows:

Year Cash Flow

• 0 ($155,000)
• 1-3 41,000
• 4 33,000
• 5-7 31,000
• 8 15,000

A.) (10.8%)

B.) 10.8%

C.) (15.6%)

D.) 15.6%

3.) Calculate the Internal Rate of Return for the following cash flows:

Year Cash Flow

• 0 ($175,000)
• 1-3 36,000
• 4 51,000
• 5-7 28,000
• 8 12,000

?A.) 10.4%

B.) (10.4%)

C.) 13.6%

D.) (13.6%)

4.) Calculate the payback period in years for the following cash flows:

Year Cash Flow

• 0 ($22,000)
• 1-3 3,000
• 4-6 5,000

A.) 6.5 Years

B.) 5.6 Years

C.) 4.5 Years

D.) 5.4 Years

5.) Calculate the payback period in years for the following cash flows:

Year Cash Flow

• 0 ($18,000)
• 1-3 2,000
• 4-6 5,000

A.) 6.5 Years

B.) 5.6 Years

C.) 4.5 Years

D.) 5.4 Years