Question
Cardinal Company purchased a new machine for $125,000. The machine will last eight years and will be depreciated using the straight-line method. The estimated residual
Cardinal Company purchased a new machine for $125,000. The machine will last eight years and will be depreciated using the straight-line method. The estimated residual value of the machine is zero and should generate a yearly cash inflow of $30,000. Ignoring taxes, what is the accounting rate of return?
3.65%
11.50%
23.00%
24.00%
8. Which of the following decision rules is a correct statement?
If the net present value is positive, do not invest in the capital asset.
If the internal rate of return is less than the required rate of return, invest in the asset.
Investments with longer payback periods are more desirable, all else being equal.
If the net present value is positive, invest in the capital asset.
9. Which of the following is NOT a factor when considering the time value of money?
The interest rate
The principal amount
The payback period
The number of periods
10. The final step in the capital budgeting process is to:
identify potential capital investments.
engage in capital rationing, if necessary, to choose among alternative investments.
utilize decision rules when screening out undesirable investments.
perform post-audits after making capital investments.
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