Question
1.(Ignore income taxes in this problem.) The management of Dewitz Corporation is considering a project that would require an initial investment of $76,000. No other
1.(Ignore income taxes in this problem.) The management of Dewitz Corporation is considering a project that would require an initial investment of $76,000. No other cash outflows would be required. The present value of the cash inflows would be $93,480. The profitability index of the project is closest to: a. 0.23 b. 1.23 c. 0.19 d. 0.81 2. (Ignore income taxes in this problem.) Lichty Car Wash has some equipment that needs to be rebuilt or replaced. The following information has been gathered concerning this decision: Present Equipment New Equipment Purchase cost new $69,500 $63,000 Remaining book value $21,800 Cost to rebuild now $21,800 Major maintenance at the end of 3 years $5,900 $3,900 Annual cash operating costs $13,500 $9,700 Salvage value in 4 years $3,800 $11,400 Salvage value now $15,200 Lichty uses the total-cost approach and a discount rate of 11% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of four years Mr. Lichty plans to close the car wash and retire. If the new equipment is purchased, the present value of the annual cash operating costs associated with this alternative is: (Round your 'PV factors' to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use Exhibit11b-1, Exhibit11b-2) a. $(18,3012) b. $(30,089) c. $(42,187) d. $(17,992) 3. (Ignore income taxes in this problem.) Rushforth Manufacturing has $104,000 to invest in either Project A or Project B. The following data are available on these projects: Project A Project B Cost of equipment needed now $104,000 $47,000 Working capital investment needed now $57,000 Annual cash operating inflows $39,500 $27,100 Salvage value of equipment in 6 years $13,500 Both projects will have a useful life of 6 years. At the end of 6 years, the working capital investment will be released for use elsewhere. Rushforth's required rate of return is 13%. The net present value of Project B is: (Round your 'PV factors' to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use Exhibit11b-1, Exhibit11b-2) a. $4,346 b. $61,346 c. $31,706 d. $13, 520 4.(Ignore income taxes in this problem.) Czaplinski Corporation is considering a project that would require an investment of $673,000 and would last for 6 years. The incremental annual revenues and expenses generated by the project during those 6 years would be as follows: Sales $191,000 Variable expenses 25,500 Contribution margin 165,500 Fixed expenses: Salaries 24,500 Rents 18,000 Depreciation 71,000 Total fixed expenses 113,500 Net operating income $52,000 The scrap value of the project's assets at the end of the project would be $36,000. The payback period of the project is closest to: a. 5.5 years b. 6.3 years c. 12.9 years d. 12.2 years 5.(Ignore income taxes in this problem.) Sam Weller is thinking of investing $70,000 to start a bookstore. Sam plans to withdraw $15,000 from the business at the end of each year for the next five years. At the end of the fifth year, Sam plans to sell the business for $110,000 cash. At a 12% discount rate, what is the net present value of the investment? (Round your 'PV factors' to three decimal places.) (Use Exhibit11b-1, Exhibit11b-2) a. $46,445 b. $70,000 c. $54,075 d. $62,370 6.(Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that costs $540,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are: Incremental net cash flows Year 1 $145,000 Year 2 $198,000 Year 3 $149,000 Year 4 $166,000 Year 5 $156,000 Year 6 $135,000 If the discount rate is 10%, the net present value of the investment is closest to: (Use Exhibit11b-1, Exhibit11b-2) a. $255,354 b. $153, 646 c. $409,000 d. $693,646 9.(Ignore income taxes in this problem.) The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $136,000 now and the useful life of the project is 12 years. Additional working capital needed immediately for this project would be $34,000; the working capital would be released for use elsewhere at the end of the 12-year period. The equipment and other materials used in the project would have a salvage value of $12,000 in 12 years. Finney's discount rate is 16%. What would the annual net cash inflows from this project have to be in order to justify investing in remodeling? (Round your 'PV factors' to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use Exhibit11b-1, Exhibit11b-2) a. $35,020 b. $31,612 c. $31,224 d. $17, 318 10. (Ignore income taxes in this problem.) Rogers Company is studying a project that would have a ten-year life and would require an $1,200,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project: Sales $700,000 Less cash variable expenses 130,000 Contribution margin 570,000 Less fixed expenses: Fixed cash expenses $280,000 Depreciation expenses 96,000 376,000 Net operating income $194,000 The company's required rate of return is 8%. What is the payback period for this project? (Round your answer to two decimal places.) a. 6.19 years b. 4.14 years c. 2.11 years d. 3.11 years 11. (Ignore income taxes in this problem.) Oriental Company has gathered the following data on a proposed investment project: Investment in depreciable equipment $382,500 Annual net cash flows $51,000 Life of the equipment 11 years Salvage value $0 Discount rate 11.75% The company uses straight-line depreciation on all equipment. The payback period for the investment would be: a. 7.50 years b. 0.13 years c. 11 years d. 3.99 years 12. (Ignore income taxes in this problem.) Blaine Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $200,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $14,500 per year to operate and maintain, but would save $58,000 per year in labor and other costs. The old machine can be sold now for scrap for $21,000. What is the simple rate of return on the new machine? (Round off your answer to the nearest one-hundredth of a percent.) a. 11.75% b. 13.135 c. 29.75% d. 25.13% 13. (Ignore income taxes in this problem.) Stutz Company purchased a machine with an estimated useful life of six years. The machine will generate cash inflows of $12,000 each year over the next six years. If the machine has no salvage value at the end of six years, if Stutz's discount rate is 13%, and if the net present value of this investment is $25,000, then the purchase price of the machine was: (Round your 'PV factors' to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use Exhibit11b-1, Exhibit11b-2) a. $25,000 b. $47,976 c. $16,739 d. $ 22,976
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Edexcel AS And A Level Mathematics Pure Mathematics Year 1/AS
Authors: Greg Attwood
1st Edition
129218339X, 978-1292183398
