USE THE FOLLOWING INFORMATION FOR QUESTIONS 1 - 4:

ABC Company is considering the purchase of a new cutting machine for $150,000. The machine has an estimated life of 15 years. ABC Company intends to use straight-line depreciation with an estimated salvage value of $0.00. The annual net cash inflow is estimated to be $30,000. ABC Company has an income tax rate of 25% and a hurdle rate of 10%

1. The Accounting Rate of Return (AROR) is equal to:

a. 8%

b. 9%

c. 10%

d. 11%

2. The Payback period is equal to:

a. 5 Years

b. 6 Years

c. 7 Years

d. 8 Years

3. The Net Present Value (NPV) is equal to:

a. $39,150

b. $40,150

c. $41,150

d. $42,150

4. The Internal Rate of Return (IRR) is equal to:

a. 13.5%

b. 14.0%

c. 14.5%

d. 15.0%

USE THE FOLLOWING INFORMATION FOR QUESTIONS 5 - 7:

ABC Company purchased an old cutting machine for $150,000 on January 1, 2010. The machine had an estimated life of 15 years. ABC Company used straight-line depreciation with an estimated salvage value of $0.00. ABC Company has an income tax rate of 25%. The old cutting machine was sold on January 1, 2013 after exactly 3 years.

5. What was the net cash inflow from the sale of the old cutting machine on January 1, 2013 when it was sold for $120,000?

a. $120,000

b. $130,000

c. $140,000

d. $150,000

6. What was the net cash inflow from the sale of the old cutting machine on January 1, 2013 when it was sold for $140,000?

a. $125,000

b. $135,000

c. $145,000

d. $155,000

7. What was the net cash inflow from the sale of the old cutting machine on January 1, 2013 when it was sold for $105,000?

a. $105,750

b. $106,750

c. $107,750

d. $108,750

8. What is the name given to choosing between or among different alternative acceptable investments due to limited investment funds?

a. Capital rationing

b. Capital investing

c. Resource rationing

d. Resource allocation