Question
1) Assume the following information for three investment proposals: Proposal A Proposal B Proposal C Investment required $ (200,000 ) $ (255,000 ) $ (350,000
1) Assume the following information for three investment proposals:
Proposal A | Proposal B | Proposal C | |||||||||||
Investment required | $ | (200,000 | ) | $ | (255,000 | ) | $ | (350,000 | ) | ||||
Present value of cash inflows | 220,000 | 315,000 | 420,000 | ||||||||||
Net present value | $ | 20,000 | $ | 60,000 | $ | 70,000 | |||||||
Based on the profitability index, which of the following statements is true?
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Proposal C is preferable to Proposal B
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Proposal A is preferable to Proposal C
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Proposal A is preferable to Proposal B
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Proposal B is the highest ranked proposal among the three choices.
2) Assume that a company is considering purchasing a machine for $50,000 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The internal rate of return on this investment is closest to:
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19%.
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21%.
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23%.
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24%.
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