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.