Hi Tutors please help me answer this

1. If the algebraic sum of the present values of all cash flows related to a proposed

capital expenditure discounted at the company's required rate of return is positive, it indicates that the

a. resultant amount is the maximum that should be paid for the asset.

b. discount rate used is not the proper required rate of return for this company.

c. investment is the best alternative.

d. return on the investment exceeds the company's required rate of return.

The following data apply to questions 2-6.

The Hilltop Corporation is considering (as of 1/1/02) the replacement of an old machine that is currently

being used. The old machine is fully depreciated but can be used by the corporation through 2006. If

Hilltop decides to replace the old machine, Baker Company has offered to purchase it for $40,000 on the

replacement date. The disposal value of the old machine would be zero at the end of 2006. Hilltop uses

the straight-line method of depreciation for all classes of machinery. If the replacement occurs, a new machine would be acquired from Busby Industries on January 2, 2002. The purchase price of $500,000 for the new machine would be paid in cash at the time of replacement.

Due to the increased efficiency of the new machine, estimated annual cash savings of $125,000 would be

generated through 2006, the end of its expected useful life. The new machine is expected to have a zero

disposal price at the end of 2006. All operating cash receipts, operating cash expenditures, and applicable tax payments and credits are

assumed to occur at the end of the year. Hilltop employs the calendar year for reporting purposes.

Discount tables for several different interest (discount) rates that are to be used in any discounting

calculations are given below. Assume for questions 2-6 that Hilltop is not subject to income taxes.

Present Value of $1.00 Received at the End of Period Present Value of an Annuity of $1.00 Received at the End of Each Period

Period 6% 8% 10% 12% 14% Period 6% 8% 10% 12% 14%

1 .94 .93 .91 .89 .88 1 0.94 0.93 0.91 0.89 0.88

2 .89 .86 .83 .80 .77 2 1.83 1.78 1.73 1.69 1.65

3 .84 .79 .75 .71 .68 3 2.67 2.58 2.49 2.40 2.32

4 .79 .74 .68 .64 .59 4 3.47 3.31 3.17 3.04 2.91

5 .75 .68 .62 .57 .52 5 4.21 3.99 3.79 3.61 3.43

2. If Hilltop requires investments to earn an 8% return, the net present value for replacing

the old machine with the new machine is

a. $175,000. b. $50,000. c. $48,750. d. $(36,250).

3. The internal rate of return, to the nearest percent, to replace the old machine is

a. 12%. b. 10%. c. 8%. d. 6%.

4. The payback period to replace the old machine with the new machine is

a. 2.5 years. b. 3.6 years. c. 4.0 years. d. 4.4 years.

5. The accrual accounting rate of return on the initial investment, to the nearest percent, is

a. 0%. b. 5.0.%. c. 5.6%. d. 28%.

6. Among the nonfinancial quantitative and qualitative factors that Hilltop should consider in its analysis

are a. lower direct labor cost and less scrap and rework.

b. lower hourly support labor cost and reduction in manufacturing cycle time.

c. lower product defect rate and faster response to market changes.

d. improved competitive position and cost of retraining of personnel.

7. The assumption that cash flows are reinvested at the rate earned by the investment

belongs to which of the following capital budgeting methods?

Internal rate of return Net present value

a. No No

b. No Yes

c. Yes Yes

d. Yes No

8. The payback capital budgeting technique considers

Time value of money Income over entire life of project

a. Yes Yes

b. Yes No

c. No Yes

d. No No

9. Refer to data for questions 2-6. If Hilltop is subject to an income tax rate of 30%, what amount of

annual cash savings would be used in a discounted cash flow method or in the payback method?

a. $157,500 b. $125,000 c. $117,500 d. $87,500

10. Refer to data for questions 2-6. If Hilltop is subject to an income tax rate of 30% and a required rate

of return of 8 %, the net present value for replacing the old machine with the new machine is

a. $(100,875). b. $3,825. c. $18,825. d. $163,425