Question
12. Paige Company is contemplating the acquisition of a machine that costs $54,000 and promises to reduce annual cash operating costs by $10,000 over each
12.
Paige Company is contemplating the acquisition of a machine that costs $54,000 and promises to reduce annual cash operating costs by $10,000 over each of the next 6 years. Which of the following is a proper way to evaluate this investment if the company desires a 12% return on all investments? (Round PV factors to 3 decimal places.)
Multiple Choice
$54,000 vs. $10,000 6.
$54,000 vs. $60,000 4.111.
$54,000 vs. $60,000 0.507.
$54,000 0.893 vs. $10,000 4.111.
$54,000 vs. $10,000 4.111.
13.
A machine costs $27,000; it is expected to generate annual cash revenues of $9,000 and annual cash expenses of $3,000 for 6 years. The required rate of return is 14%. The net present value of this machine would be closest to (Round PV factors to 3 decimal places.):
Multiple Choice
$23,334.
$35,001.
$(3,666).
$0.
$(8,001).
15.
Hightower Company plans to incur $440,000 of salaries expense if a capital project is implemented. Assuming a 40% tax rate, the salaries should be reflected in the analysis by a:
Multiple Choice
$264,000 inflow.
$440,000 outflow.
$264,000 outflow.
$176,000 outflow.
$176,000 inflow.
17.
Crossword Company is studying a capital project that will produce $700,000 of added sales revenue, $500,000 of additional cash operating expenses, and $60,000 of depreciation. Assuming a 30% income tax rate, the company's after-tax cash inflow (outflow) is:
Multiple Choice
$98,000.
$138,000.
$158,000.
$198,000.
None of these.
18.
Julio Company purchased a $450,000 machine that has a 6-year life and no salvage value. The company uses straight-line depreciation on all asset acquisitions and is subject to a 30% tax rate. The proper cash flow to show in a discounted-cash-flow analysis as occurring at time 0 would be:
Multiple Choice
$(450,000).
$(315,000).
$(52,500).
$22,500.
$75,000.
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