Question 30

1. Cleaners, Inc. is considering purchasing equipment costing $30,000 with a 6-year useful life. The equipment will provide cost savings of $7,300 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return.

   Present Value of an Annuity of 1

   Period	8%	9%	10%	11%	12%	15%
   6	4.623	4.486	4.355	4.231	4.111	3.784

   Reference: Ref 12-2

   What is the approximate net present value of this investment?

   Answer

   	A.	$2,748
   	B.	$886
   	C.	$1,792
   	D.	$13,800

Question 31

1. If a project's profitability index is greater than 1, then the

   Answer

   	A.	project should always be accepted.
   	B.	project should be accepted if funds are available.
   	C.	project's internal rate of return is less than the discount rate.
   	D.	project's net present value is negative.

Question 32

1. Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below:

   Project Soup

   Project Nuts

   Initial investment	$400,000	$600,000
   Annual net income	20,000	42,000
   Net annual cash inflow	100,000	142,000
   Estimated useful life	5 years	6 years

   Salvage value

   -0-

   -0-

   The company requires a 10% rate of return on all new investments.

   Present Value of an Annuity of 1

   Periods	9%	10%	11%	12%
   5	3.890	3.791	3.696	3.605
   6	4.486	4.355	4.231	4.111

   Reference: Ref 12-4

   The internal rate of return for Project Nuts is approximately

   Answer

   	A.	11%.
   	B.	12%.
   	C.	9%.
   	D.	10%.

Question 33

1. If a project has a salvage value greater than zero, the salvage value will

   Answer

   	A.	decrease the net present value.
   	B.	increase the net present value.
   	C.	have no effect on the net present value.
   	D.	increase the payback period.

Question 34

1. Harbor Company reported net income of $90,000 for the year ended December 31, 2011. During the year, inventories decreased by $12,000, accounts payable decreased by $18,000, depreciation expense was $20,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2011 using the indirect method was

   Answer

   	A.	$107,000.
   	B.	$95,000.
   	C.	$149,000.
   	D.	$85,000.

Question 35

1. LF's Pest Control Products has the following information available:

   Net Income	$25,000
   Cash Provided by Operations	31,000
   Cash Sales	65,000
   Capital Expenditures	11,000
   Dividends Paid	3,000

   What is LF's free cash flow?

   Answer

   	A.	$11,000
   	B.	$28,000
   	C.	$17,000
   	D.	$20,000

Question 36

If a gain of $15,000 is incurred in selling (for cash) office equipment having a book value of $100,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is

Answer

	A.	$15,000.
	B.	$115,000.
	C.	$95,000.
	D.	$100,000.