1. Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $24,000 and will have a 6-year useful life and a $5,800 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $33,800 per year. The cost of these prescriptions to the pharmacy will be about $28,600 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to (Ignore income taxes.):

2.

Croce, Inc., is investigating an investment in equipment that would have a useful life of 9 years. The company uses a discount rate of 16% in its capital budgeting. The net present value of the investment, excluding the salvage value, is $578,586. (Ignore income taxes.)

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.

How large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive?

3.

The management of Osborn Corporation is investigating an investment in equipment that would have a useful life of 7 years. The company uses a discount rate of 12% in its capital budgeting. The net present value of the investment, excluding the annual cash inflow, is $407,814. How large would the annual cash inflow have to be to make the investment in the equipment financially attractive? (Ignore income taxes.)

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.

4.

Perkins Corporation is considering several investment proposals, as shown below:

		Investment Proposal
	A			B			C			D
Investment required	$	160,000		$	200,000		$	120,000		$	150,000
Present value of future net cash flows	$	192,000		$	300,000		$	168,000		$	360,000

If the project profitability index is used, the ranking of the projects from most to least profitable would be:

5.

Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $190,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $28,000 per year to operate and maintain, but would save $60,000 per year in labor and other costs. The old machine can be sold now for scrap for $19,000. The simple rate of return on the new machine is closest to (Ignore income taxes.):

6.

Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):

Investment required in equipment	$	38,500
Annual cash inflows	$	9,400
Salvage value of equipment	$	0
Life of the investment		15	years
Required rate of return		10	%

The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.

The internal rate of return of the investment is closest to: