15)

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

Use this data to answer questions 15 and 16:

If taxes are ignored and the required rate of return is 10%, what is the project's net present value (rounded to the nearest dollar)?(5pts)

a. $1,262,910

b. $1,020,000

c. $329,226

d. $344,409

e. None of the answer choices is correct.

16)Using the net present (NPV) to evaluate this proposal, the company should:(5pts)

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.

17)Lassen Inc. is considering a $200,000 capital investment project, with the following cash flows:

Year Cash Flow

1 $ 40,000

2 95,000

3 45,000

4 50,000

5 30,000

6 20,000

Rounded to the nearest month, what is the cash payback period?(5pts)

a. 3 years.

b. 2 years, 5 months.

c. 3 years, 5 months.

d. 4 years, 5 months.

e. None of the answer choices is correct.

18)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?(5pts)

a. $176,000

b. $260,000

c. $216,000

d. $256,000

e. None of the answer choices is correct.

19)Horizon Company produces a variety of boating products. Each division manager at Horizon is paid a base salary and given an annual cash bonus if the division achieves profits of at least 12 percent of the value of assets invested in the division (this is often called return on investment).

Whereas, Kathy Bainsley, manager of the Kayak Division, is considering investing in new production equipment. The net present value of the proposal is positive, and Kathy is convinced the new equipment will provide a competitive edge for future years. Even though short-term profits will reduce the return on investment below the 12 percent requirement for the next two years, profits are expected to increase significantly beginning in year three. Unfortunately, Kathy is planning to retire in two years and this investment would prevent her from receiving her annual bonuses for the next two years. As a result, Kathy plans to reject the proposal to invest in new production equipment.

Which company action would increase the likelihood of Kathy accepting the proposal?(5pts)

a. Offering stock options.

b. Providing short-term bonuses that adjust for the negative effects of new projects.

c. Establishing policies that require review teams for new projects.

d. All of the choices increase the likelihood of Kathy accepting the proposal

e. None of the answer choices is correct.