Question
The following relates to a proposed equipment purchase: Cost$153,000Salvage value$3,000Estimated useful life4yearsAnnual net cash flows$50,600Depreciation methodStraight-line Ignoring income taxes, the annual net income amount used
The following relates to a proposed equipment purchase:
Cost$153,000Salvage value$3,000Estimated useful life4yearsAnnual net cash flows$50,600Depreciation methodStraight-line
Ignoring income taxes, the annual net income amount used to calculate the accounting rate of return is:
Multiple Choice
- $50,600
- $13,100
- $13,850
- $88,100
- $49,850
A company is considering the purchase of new equipment for $99,000. The projected annual net cash flows are $38,800. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 8% return on investment. The present value of an annuity of $1 for various periods follows:
PeriodPresent value of an annuity of $1 at 8%10.925921.783332.5771
What is the net present value of this machine assuming all cash flows occur at year-end?
Multiple Choice
- $33,000
- $4,800
- $991
- $37,800
- $97,414
the following present value factors are provided for use in this problem.
PeriodsPresent Value
of $1 at 8%Present Value of an
Annuity of $1 at 8%10.92590.925920.85731.783330.79382.577140.73503.3121
Cliff Co. wants to purchase a machine for $40,000, but needs to earn a return of 8%. The expected year-end net cash flows are $12,000 in each of the first three years, and $16,000 in the fourth year. What is the machine's net present value?
Multiple Choice
- $(9,075).
- $2,685.
- $42,685.
- $(28,240).
- $52,000.
company is planning to purchase a machine that will cost $24,600 with a six-year life and no salvage value. The company uses straight-line depreciation. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?
Sales$91,000Costs:Manufacturing$52,100Depreciation on machine4,100Selling and administrative expenses31,000(87,200)Income before taxes$3,800Income tax (35%)(1,330)Net income$2,470
Multiple Choice
- 50.00%.
- 10.04%.
- 4.10%.
- 33.33%.
- 20.08%.
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