1. Refer to Exhibit 8-1. Using the net present (NPV) to evaluate this proposal, the company should: Exhibit 8-1 A project requires an initial investment of $1,500,000 and will return $420,000 each year for six years. Factors: Present Value of an Annuity (r = 10%) Year 1 0.9091 Year 2 1.7355 Year 3 2.4869 Year 4 3.1699 Year 5 3.7908 Year 6 4.3553

A.Reject the proposal since the NPV is ($329,226).

B.Invest in the proposal since the NPV is $1,020,000.

C.Invest in the proposal since the NPV is $3,329,226.

D.Invest in the proposal since the NPV is $329,226.

E.None of the answer choices is correct.

2. Lanyard Company is considering an investment that will generate $600,000 in cash inflows per year for 7 years and has $240,000 of cash outflows for the same period (before income taxes). The cost of the asset is $700,000 and it will be depreciated using straight-line depreciation over the 7 year life. The asset has no salvage value. Lanyards tax rate is 40%. The cost of capital is 18%. What is the annual after-tax cash flow associated with this investment?

A.$176,000

B.$260,000

C.$216,000

D.$256,000

E.None of the answer choices is correct.

3. Inglewood Inc. would like to purchase a specialized production machine for $3,500,000. The machine is expected to have a life of three years, and a salvage value of $200,000. Annual mainte-nance costs will total $200,000. Annual material savings are predicted to be $900,000. The company's required rate of return is 20 percent. Ignoring the time value of money, what is the net cash inflow or (outflow) resulting from this investment opportunity?

A.$2,300,000

B.$1,200,000

C.($1,200,000)

D.($2,300,000)

E.None of the answer choices is correct.

4. Sanders Company would like to purchase a specialized production machine for $1,000,000. The machine is expected to have a life of five years, and a salvage value of $300,000. Annual maintenance costs will total $50,000. Annual labor savings are predicted to be $280,000. The company's required rate of return is 15 percent. Ignoring the time value of money, what is the net cash inflow or (outflow) resulting from this investment opportunity?

A.($100,000)

B.$950,000

C.$1,450,000

D.$450,000

E.None of the answer choices is correct.

5. If a project has an internal rate of return of 25% and a negative net present value, which of the following statements is true regarding the discount rate used for the net present value computation?

A.The required rate of return must have been 0%.

B.The required rate of return must have been equal to 25%.

C.The required rate of return must have been less than 25%.

D.The required rate of return must have been greater than 25%

E.None of the answer choices is correct.

7. Reinhart Company would like to purchase a new machine for $5,000,000. The machine is expected to have a life of five years, and a salvage value of $1,000,000. Annual maintenance costs will total $300,000. Annual labor and material savings are predicted to be $2,000,000. The company's required rate of return is 26 percent. What is the payback period for this investment (round to the nearest month)?

A.1 year, 11 months.

B.1 year, 9 months.

C.2 years, 9 months.

D.2 years, 11 months.

E.None of the answer choices is correct.

8. For organizations that do not pay income taxes, the depreciation taken on a long-term asset in future periods:

A.must be multiplied by the tax rate for the IRR and NPV.

B.must be multiplied by one minus the tax rate for the IRR and NPV calculations.

C.is not included in the IRR and NPV calculations.

D.is only included in the payback calculation.

E.None of the answer choices is correct.

9. If a project's net present value is zero, the internal rate of return is:

A.less than the discount rate.
B.equal to the discount rate.
C.greater than the discount rate.
D.cannot be determined without more information.
E.None of the answer choices is correct.