1)

A company is considering the purchase of a new piece of equipment for $93,200. Predicted annual cash inflows from this investment are $38,000 (year 1), $29,000 (year 2), $19,000 (year 3), $13,000 (year 4) and $8,000 (year 5). The payback period is:

4.45 years.

3.55 years.

2.55 years.

4.21 years.

3.00 years.

2)

A company is planning to purchase a machine that will cost $30,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

Sales		$123,000
Costs:
Manufacturing	$53,100
Depreciation on machine	5,100
Selling and administrative expenses	41,000	(99,200)
Income before taxes		$23,800
Income tax (30%)		(7,140)
Net income		$16,660

108.89%.

50.00%.

54.44%.

33.33%.

5.10%.

3)

The following present value factors are provided for use in this problem.

Periods	Present Value of $1 at 8%	Present Value of anAnnuity of $1 at 8%
1	0.9259	0.9259
2	0.8573	1.7833
3	0.7938	2.5771
4	0.7350	3.3121

Xavier Co. wants to purchase a machine for $37,100 with a four year life and a $1,100 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,100 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)?

$3,785.

$2,976.

$40,885.

$(3,785).

$(2,976).

4)

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $14,400 and will produce cash flows as follows:

End of Year	Investment
	A	B
1	$9,600	$0
2	9,600	0
3	9,600	28,800

The present value factors of $1 each year at 15% are:

1	0.8696
2	0.7561
3	.6575

The present value of an annuity of $1 for 3 years at 15% is 2.2832 The net present value of Investment A is:

$18,936.

$(14,400).

$14,400.

$(21,919).

$7,519.

5)

Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $10.80; direct labor, $14.80, variable overhead, $3.80 and fixed overhead, $8.80. An outside supplier has offered to sell the product to Axle for $38.20. Compute the net incremental cost or savings of buying the component.

$8.80 savings per unit.

$3.80 cost per unit.

$0 cost or savings per unit.

$8.80 cost per unit.

$4 savings per unit.

6)

Granfield Company has a piece of manufacturing equipment with a book value of $36,000 and a remaining useful life of four years. At the end of the four years the equipment will have a zero salvage value. The market value of the equipment is currently $21,200. Granfield can purchase a new machine for $112,000 and receive $21,200 in return for trading in its old machine. The new machine will reduce variable manufacturing costs by $18,200 per year over the four-year life of the new machine. The total increase or decrease in net income by replacing the current machine with the new machine (ignoring the time value of money) is:

$18,000 increase

$72,800 decrease

$14,800 decrease

$49,200 increase

$18,000 decrease