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Assume that a company is considering purchasing a new plece of equipment for $240,000 that would have a useful life of 10 years and no salvage value The new equipment would cost $20,000 per year to operate and it would replace an old plece of equipment that costs $60.000 per year to operate. The old equipment currently being used could be sold for a salvage value of $40,000. What is the annual incremental net operating income provided by the new equipment? Multiple Choice $15,000 $40,000 $24000 o $36.000 A company's cost of capital is usually regarded as: Multiple Choice O the hurdle rate it uses to compute capital investment payback periods. the amount by which its current assets exceed its current liabilities. O a reliable estimate of its simple rate of return. its minimum required rate of return. Assume that a company is considering purchasing a new piece of equipment for $240,000 that would have a useful life of 10 years and no salvage value The new equipment would cost $20,000 per year to operate and it would replace an old piece of equipment that costs $60,000 per year to operate. The old equipment currently being used could be sold for a salvage value of $40,000. What is the amount of the initial investment associated with this proposal that should be used for calculating the simple rate of return? Multiple Choice $240,000 $220,000 $200,000 $180,000 Which of the following statements is false regarding the net present value method? Multiple Choice A positive net present value indicates that the project's rate of return exceeds the discount rate. A net present value of zero indicates that the project should be rejected. A negative net present value indicates that the project should be rejected, A positive net present value indicates that the project should be accepted. $560,000 Initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket costs $300,000 $130,000 $ 50,000 $ 40,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the table This proposal's internal rate of return is closest to: Multiple Choice 3% 8% 10%. $560,000 initial investment: Cost of equipment (zero salvage value) Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket costs $300,000 $130,000 $ 50,000 $ 40,000 The payback period for this investment is closest to: Multiple Choice 1.98 years 7.00 years O 3.29 years. 4.31 years. Investment required Present value of cash inflows Net present value Proposal A Proposal B $(200,000) $(275,000) 220,000 335,000 $ 20,000 $ 60,000 Proposal c $(350,000) 420,000 $ 70,000 What is the profitability index for Proposal C? Multiple Choice 0.20 1.40 120 0.83 Assume that a company buys a new machine for $120,000 that has a useful life of six years and a $20,000 salvage value. The machine will reduce operating costs by $25,000 per year. What is the payback period for this investment? Multiple Choice 0.80 years 4.8 years 4 years O 5 years Assume that a company is considering purchasing a machine for $50,000 that will have a five-year useful fe and no salvage value. The machine will lower operating costs by $17.000 per year. The internal rate of return on this investment is closest to Multiple Choice O o 23 211 O o 24% O 12 Which of the following statements is false regarding the net present value method? Multiple Choice O A negative net present value indicates that the project should be rejected. A net present value of zero indicates that the project should be accepted A positive net present value indicates that the discount rate exceeds the project's rate of return A positive net present value indicates that the project should be accepted. Assume that a company purchased a new machine for $19,000 that has a salvage value of $3,000 at the end of its useful life of five years. The machine is expected to save the company $6,000 a year in cash operating costs for five years. The company's discount rate is 12%. The profitability index of this investment opportunity is closest to Click here to view Exhibit 1981 and Exhibit 148-2. to determine the appropriate discount factor(s) using the tables provided. Multiple Choice 123 133 O 120 130 Which of the following is not an example of a typical capital budgeting decision? Multiple Choice The decision to reduce or maintain this year's advertising budget. The decision to replace a piece of equipment now or later The decision to build a new plant or expand an existing plant. The decision to lease or buy equipment The term capital budgeting describes how companies: Multiple Choice develop annual estimates that are used to create a budgeted income statement and balance sheet use activity based costing to develop product and customer profitability projections. use budgets to evaluate the performance of investment center managers, plan significant investments in projects that have long term implications, Which of the following equations is used to calculate the simple rate of return? Multiple Choice Initial investment + Annual incremental cash flows Initial investment Annual incremental net operating income Annual incremental net operating income + Initial investment Annual incremental cash flows + Initial investment Help Save & Exit Assume that a company is considering buying a new plece of equipment for $240,000 that would have a useful life of five years and no salvage value The equipment would generate the following estimated annual revenues and expenses: $134,800 Revenues Less operating expenses: Commissions Insurance Depreciation Maintenance Net operating income $15,000 5,000 48,000 30,000 98,000 $ 36, 800 Click here to view Exhibit 148.1 and Exhibit 148:2, to determine the appropriate discount factor(s) using the tables provided The internal rate of return for this investment is closest to: Multiple Choice 27 211 111 Bleu