Week 4 question
Crane Inc had the following activity last year: Sales $295000; Cost of goods sold $175000; Depreciation expense $20000; other selling and administrative expenses $90000; income tax expense $2500. What was the estimated net cash flow for the year?
$27500
$7500
$10000
$30000
2. Sheridan, Inc. is considering purchasing equipment costing $60000 with a 6-year useful life. The equipment will provide annual cost savings of $15000 and will be depreciated straight-line over its useful life with no salvage value. Sheridan 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 |
What is the approximate net present value of this investment?
$7290
$30000
$3464
$5325
3. Metlock, Inc. is considering purchasing equipment costing $ 46000 with a 6-year useful life. The equipment will provide annual cost savings of $ 11189 and will be depreciated straight-line over its useful life with no salvage value. Metlock 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 |
What is the approximate internal rate of return for this investment?
12%
10%
11%
9%
4.
|
Present Value of an Annuity of 1 |
|||
|
Periods |
8% |
9% |
10% |
|
1 |
0.926 |
0.917 |
0.909 |
|
2 |
1.783 |
1.759 |
1.736 |
|
3 |
2.577 |
2.531 |
2.487 |
A company has a minimum required rate of return of 9%. It is considering investing in a project that costs $ 177000 and is expected to generate cash inflows of $ 72000 at the end of each year for three years. The net present value of this project is
$ 36000.
$ 5232.
$ 18223.
$ 182232.
5. CheyenneCompany is considering two capital investment proposals. Estimates regarding each project are provided below:
|
|
Project Soup |
Project Nuts |
|
Initial investment |
$ 460000 |
$ 432000 |
|
Annual net income |
30000 |
46000 |
|
Net annual cash inflow |
110000 |
146000 |
|
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 |
3.89 |
3.791 |
3.696 |
3.605 |
|
6 |
4.486 |
4.355 |
4.231 |
4.111 |
The cash payback period for Project Nuts is
2.96 years.
15.33 years.
5.75 years.
5.27 years.
6. If a project costing $ 81000 has a profitability index of 1 and the discount rate was 12%, then the present value of the net cash flows was
$ 81000.
less than $ 81000.
greater than $ 81000.
undeterminable.
7. A project has an annual rate of return of 15%. The project cost $ 60000, has a 5-year useful life, and has no salvage value. Straight-line depreciation is used. The annual net income, exclusive of depreciation, is
$ 23850.
$ 9000.
$ 21000.
$ 16500.
8. A project that cost $ 66000 has a useful life of 5 years and a salvage value of $ 3000. The internal rate of return is 12% and the annual rate of return is 18%. The amount of the annual net income is
$ 4140.
$ 5670.
$ 6210.
$ 3780.
9. Sunland Inc. is contemplating a capital investment of $ 98000. The cash flows over the project’s four years are:
|
Expected Annual |
Expected Annual |
|
|
Year |
Cash Inflows |
Cash Outflows |
|
1 |
$ 40000 |
$ 16000 |
|
2 |
45000 |
25000 |
|
3 |
60000 |
30000 |
|
4 |
65000 |
40000 |
The cash payback period is
3.22 years.
3.53 years.
3.96 years.
2.43 years.
10. A company is considering purchasing a machine that costs $ 560000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $ 240000 and annual operating expenses exclusive of depreciation expense are expected to be $ 42000. The straight-line method of depreciation would be used. The cash payback period on the machine is
2.8 years.
8.0 years.
1.9 years.
3.8 years.
12. The following information is available for a potential investment for Panda Company:
|
Initial investment |
$ 110000 |
|
Net annual cash inflow |
20000 |
|
Net present value |
43150 |
|
Salvage value |
10000 |
|
Useful life |
10 yrs. |
The potential investment’s profitability index is
5.50.
3.55.
1.39.
2.55.