1 - A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows generated by the project is $145,000. Should they invest in this project?

A - yes, because the rate of return on the project exceeds the desired rate of return used to calculate the present value of the future cash flows.

B - no, because the rate of return on the project is less than the desired rate of return used to calculate the present value of the future cash flows.

C - no, because net present value is +$5,000D -

yes, because the rate of return on the project is equal to the desired rate of return used to calculate the present value of the future cash flows.

2 - All of the following are factors that may complicate capital investment analysis except

A - the leasing alternative

B - changes in price levels

C - sunk cost

D - the federal income tax

3 - 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 in this situation:

Year	Income fromOperations	Net Cash Flow
1	$100,000	$180,000
2	40,000	120,000
3	20,000	100,000
4	10,000	90,000
5	10,000	90,000

The present value index for this investment is:

A - .88

B - 1.45

C - 1.14

D - .70