1. Assume that a company is considering buying a new piece of equipment for $280,000 that would have a useful life of five years and a salvage value of $50,000. The equipment would generate the following estimated annual revenues and expenses:

Revenues $ 120,000

Less operating expenses:

Commissions $ 15,000

Insurance 5,000

Depreciation 46,000

Maintenance 30,000 96,000

Net operating income $ 24,000

The company also believes that this investment would provide some annual intangible benefits that are difficult to quantify. Assuming a discount rate of 20%, the minimum dollar value per year that must be provided by the equipments intangible benefits to justify the $280,000 investment is closest to:

Multiple Choice

$51,944.

$60,894.

$16,894.

$7,944.

2. Assume that a company is considering a capital investment project with a four-year time horizon and the following cash flows:

Cost of new equipment	$ 190,000
Working capital required	$ 50,000
Annual net cash inflows	$ 100,000
Maintenance and repairs in third year	$ 40,000
Salvage value of equipment in fourth year	$ 30,000

Assuming the companys required rate of return is 20%, the profitability index of the project is closest to:

Multiple Choice

1.14.

1.17.

1.33.

1.21.