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24. Bravo Pty Ltd is considering the addition of a new product line. The new product will require an i tiai capital outtay 01 $70 000 and is expected to have e live-year lire cycle. The manager estimates that because or the new product. cash ow will increase over the next ve years by the following ameunls. Vaar Increase 1 520 III] 2 $25 III] 3 524 L113 4 $10 IID 5 $15 [ID It Brevo's hurdle rate is 14 per cent, calculate the net present value of the new product line. (Income taxes can be ignored.) A. $0 B.$71406 C. 568 275 D. 31406 22. The mayor or Smalltown, Western Australia. is considering the purchase or a computer system to automate the city's rate collections. The system costs $75 000 and has an estimated lite or live years, The mayor estimates the following savings will result it the system is purchased. Veer Savings 1 $20 one 2 525 [Ill] 3 $3] 1200 4 $15 UJEI 5 $12 UJEI It Smalitown uses a 10 per cent discount rate for capital budgeting decisions. what can be said about the internal rate of return (IRR) if the net present value at 12 per oent is positive? A. The IRR is greater than 12 per cent. B. The IRR is between 10 per cent and 12 per cent. 0. The IRR ls less than 10 per cent. D. Insufficient information to determine. 20. A machine costs $25 000. It is expected to generate annual revenue 0158000 and annual expenses 01$2000 each year for ve years. The required rate of return is 12 per cent. What is the net present value of the machine? A. $21 630 B. $23 840 0. ($3370) D. $3640 13. if $2000 is invested at 10 per cent at the start of every year for three years. how much will you have accumulated at the and ofthe three years? A. $6620 B. $6340 C. $6600 D. $6748 54. Assuming interest rates average 6 per cent, how much would you need to save at the end of each year it you wished to accumulate one million dollars over 20 years? A. $50 000 B. $43 800 C. $27 164 D. $14 565 35. A piece at equipment costs $24 000. It is expected to generate $7500 or annual cash revenues and $1500 of annual cash expenses, The disposal value at the and of the estimated 10-year life is $2000. What is the payback period? A. 320 years B. 6.67 years C. 3.67 years D. 4.00 years 29. Cubbies Pty Ltd is considering the purchase ore new machine to replace an old machine. Seiected cost data pertaining to the two machines is provided below. Old New Purchase price $10 om SEED] Accumulated depreciation in four years 51000] 0901i Current disposal value 540m Estimated disposal value in tour years SCI $2020 Annual operating costs scoop $3M At the end orraur years, the company plans to discontinue the product line ror which the machines are used. Income taxes can be ignored. Calculate the net present vaiue of the new machine, if Cubbies Pty Ltd's hurdle rate is 14 per cent. A. ($903) a. ($4097) C. ($87) D. ($2913) 28, Cubbies Pty Ltd Is considering the purchase of a new machine to replace an old machine. Selected cost data pertaining to the two machines is provided below. Old New Purchase price 510 0D] $9010 Accumulated depreciation in four years 51000] canon Currant disposal value 540m Estimated disposal value in tour years 80 $20.10 Annual operating costs scum Em At the end oiiour years. the company plans to discontinue the product line for which the machines are used. Income taxes can be ignored. Using the incremental cost approach. calculate the current period (Le. year zero) cash ows relevant to acquiring the new machine. A. $9000 outflow B. $4000 inow 0. $3000 outow D. $5000 outow 62. Rogers Company purchased equipment for $30 000 in December 012014. It is expected to generate $10 000 per year in additional revenue and $2000 per year in additional cash expenses beginning in 2015. Depreciation in 2015 will be $3000. The rm's tax rate is 40 per cent. What is the annual after-tax cash ow in 20157 A. $8000 B. $4800 0. $6000 D. $3600 66. Charlotte Computer Services is orchasing equipment at $100 000. It is anticipated the equipment will have a useful life of five years. It will be depreciated on a straight-line basis. Operating revenue is expected to be $74 000 per annum and operating expenses $25 000 per annum. The equipment is subject to an investment allowance of 10 per cent and the tax rate is 30 per cent. The after-tax hurdle rate is 12 per cent. The reduction in tax due to the investment allowance is: A. $10 000. 2: $7000 D. $8700. 67. Charlotte Computer Services is considering purchasing equipment at $100 000. It is anticipated the equipment will have a useful life of five years. It will be depreciated on a straight-line basis. Operating revenue is expected to per annum and operating expenses $25 000 per annum. The equipment is subject to an investment allowance of 10 per cent and the tax rate is 30 per cent. The after-tax hurdle rate is 12 per cent. What is the tax effect of the depreciation? B. $21 630 C. $24 630 D. $6000 ervices is considering purchasing 68. Charlotte Computer Services Is com anticipated the equipment will per annum and operating expenses $25 000 per annum. The equipment is subject to an investment allowance of 10 per cent and the tax rate is 30 per cent. The after-tax hurdle rate is 12 per cent. What is the net present value of the investment? A. $45 282 C. $70 825 D. $48 282 65. Abco Pty Lid is considering the purchase of $60 000 in tools. The manager estimates that the tools will generate $25 000 in savings during each year of a four-year life. The tools will be depreciated based on the following schedule. Depreciation $20 000 $27 000 $9000 $4000 The expected tax rate is 30 per cent ax effect of the depreciation in year 3? (Ignore time value of money) $9000 C $2700 D. $1823 64. Abco Pty Lid is considering the purchase of $60 000 in tools. The manager estimates that the tools will generate $25 000 in savings during each year of a four-year life. The tools will be depreciated based on the following schedule. Year Depreciation $20 00 $27 000 $900 $4000 The expected tax rate is 30 per cent. What is the net present value of the investment, assuming an after-tax hurdle rate of 14 per cent? A. $5007 C. $23 700 D. ($1720) 63. The following data applies: Acquisition cost $10 000 Annual cash flows on after-tax basis: Incremental sales revenue $6000 Incremental operating revenue $1200 Depreciation per annum $1000 Tax rate 20% Required rate of return 10% What would be the present value of the after-tax cash flow for year 0? A. ($10 000) B. $0 C. $4726 D. $4000 17. The manager of Malan Pty Lid wants to buy a new machine to replace the one currently being used. The new machine will cost $100 000 with no disposal value at the end of a five-year useful life. The manager estimates that the machine will reduce annual operating costs by $30 000. Depreciation will be $20 000 per year for five years. The tax rate for each year is expected to be 20 per cent and the company has an after-tax hurdle rate of 12 per cent. What is the after- tax accounting rate of return computed based on the initial investment? A. 8% B. 209 D. 10% 74. The manager of er of Malan Pty Lid wants to buy a new machine to replace the one currently being used. The new machine will reduce annual operating costs by $30 000. Depreciation will be $20 000 per year for five years. The tax rate A. $30 000 annual after-tax cash flow for years 1 to 5 associated with the purchase of the new machine? C. $24 000 D. $22 000 machine will cost 75. The manager of Malan Pty Ltd wants to buy a new machine to replace the one currently being used. The new of a five-year useful life. The manager estimates that the machine will reduce annual operating costs qual operating costs by $30 000. Depreciation will be $20 000 per year for five years. The tax rate year is expected to be 20 per cent and the company has an after-tax hurdle rate of 12 per cent. What is the after- A. $100 940 D. ($13 480) 76. The manager of Malan Pty Lid wants to buy a new machine to replace the one currently being used. The new machine will reduce annual operating costs by $30 000. Depreciation will be $20 000 per year for five years. The tax rate for each year is expected to be 20 per cent and the company has a company has an after-tax hurdle rate of 12 per cent. What is the after- All payback period of the machine? B. 3.57 years C. 4.17 years D. 4.55 years 72. A machine will cost $28 000. It is estimated that it will generate $8000 in after-tax savings each year during its five- year life. What is the profitability index assuming a hurdle rate of 10 per cent? A. 1.08 D. 1.43 95. Chelonia Mydas purchased a machine for $500 000 three years ago. The machine can be fully depreciated for tax purposes over 5 years. The tax rate is 30 per cent. What is the carrying amount of this machine for tax purposes? B. $140 000 C. $100 00 D. $70 000 96. Chelonia Mydas purchased a machine for $500 000 three years ago. The machine can be fully depreciated for tax purposes over 5 years. The tax rate is 30 per cent. Assume that Chelnoia decides to sell the machine for $150 000. What A. No tax effect of the disposal? B. Tax saving of $15 000 D. Tax expense of $45 000 91. Cubbies Pty Ltd is considering the purchase of a new machine to replace an old machine. Selected cost data pertaining to the two machines is provided below. Old Purchase price $10 000 $900 Accumulated depreciation in four years $10 000 $9000 Current disposal value $4000 Estimated disposal value in four years $2000 Annual operating costs $4000 $3000 ignored. Calculate the net present value of the new machine, if Cubbies Ply Lid's hurdle rate is 14 per cent. D . 22 .2% . fully depreciated at the end of their useful lives. The government provides an investment allowance of 15 per cent. rate is 30 per cent. The net cash flow impact of the investment allowance is: A. $900. C. $5250 . $15 000.60. Suppose a rm has an asset that originally cost $5000 and currently has accumulated depreciation of $2000. The rm is subject to a 23 per cent income tax rate. Suppose the rm sells the asset for $2000. What was the book value before sale? A. $5000 B. $2000 0. $3000 D. $1500 61. Suppose a rm has an asset that originally cost $5000 and currently has accumulated depreciation of $2000. The rm is subject to a 28 per cent income tax rate. Suppose the rm sells the asset for $2000. What will be the loss without regard to taxes? A. ($1000) B. ($3000) 0. ($1120) D. ($2000) 88. Refer to the following information about three projects with the same expected lives. [f a company wants to rank these three projects: Project X ProjectY Projeth Profitability index 0.9 1.2 1.7 Initial investment $500 003 5900 0CD SEED 000 A. Project X is preferable because it has the lowest profitability index. 5. Project Y is preferable. because it has the highest amount of net present value. 0. Project 2 is preferable. because it has the highest protability index. D. Project X is preferable. because its protability index is below 1. 59. Verltas Ltd Is considering Investing in a new machine which costs $450 000. For accounting purposes this machine can be fully depreciated over 6 years; but for tax purposes. the machine can be fully depreciated over 5 years. The machine has no resale value. The annual cost savings resulting from the purpose of this machine is $100 000. Assume a tax rate of 30 per cent. The annual net cash flow is: A. $9? 000. B. $92 500. C. $17 500. D. $T000. 90. Veritas Ltd is considering investing in a new machine which costs $450 000. For accounting purposes this machine can be fully depreciated over 6 years; but for tax purposes. the machine can be fully depreciated over 5 years. The machine has no resale value. The annual cost savings resulting from the purpose of this machine is $100 000. Assume a tax rate of 30 per cent. The payback period is: A. 6.43 years. B. 5.?1 years. C. 4.64 years. D. 4.50 years