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The following details for a company have been provided: Initial investment $150,000 Initial investment in working capital $30,000 Estimated annual sales $160,000 Estimated annual cash

  1. The following details for a company have been provided:
Initial investment $150,000
Initial investment in working capital $30,000
Estimated annual sales $160,000
Estimated annual cash operating expenses $70,000
Repairs in year 3 $25,000
Investments useful life / salvage value 4 years; $0 salvage
Discount rate 18%
Tax rate 30%

What is the total cash flows for Year 1 to be used in an NPV analysis?

$36,750
$30,750
$63,000
$74,250

2. Which of the following statements are true?

I. An unfavorable activity variance for revenue will result from an actual level of activity that is greater than the planned level of activity.

II. A favorable activity variance for rent expense will result from an actual level of activity that is less than the planned level of activity.

III. A favorable activity variance for revenue will result from an actual level of activity that is greater than the planned level of activity.

3.Which of the following combinations is accurate?

Combination Capital Budgeting Technique Utilizes Time Value of Money Utilizes Cash Flows
1 Payback Method No Yes
2 Net Present Value Method Yes No
3 Internal Rate of Return No Yes
4 Simple Rate of Return Yes No
Combination 1
Combination 2
Combination 3
Combination 4

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