USE THE FOLLOWING INFORMATION FOR QUESTIONS 1-5

XYZ Company is considering the purchase of a new machine that would cost $1,000,000. The machine would have a useful life of 10 years. XYZ Company plans on using straight-line depreciation with an estimated salvage value of $0. XYZ Company has a hurdle rate of 12% and is subject to an income tax rate of 40%. The annual cash income is estimated to be $300,000. PV TABLES CAN BE FOUND ON PAGE 18.

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

1. 14.00%
2. 13.00%
3. 11.00%
4. 12.00%

2. The Net Present Value (NPV) is:

1. $243,000
2. $143,000
3. $343,000
4. $443,000

3. The Profitability Index (PI) is:

1. 1.343
2. 1.243
3. 1.143
4. 1.043

4. The Payback period is:

A. 4.245 years

B. 4.345 years

C. 4.445 years

D. 4.545 years

5. Using interpolation, the Internal Rate of Return (IRR) is:

1. 16.6%
2. 17.6%
3. 18.6%
4. 15.6%