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Exam 26: Capital Investment Analysis

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Question 21

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Following is a table for the present value of $1 at compound interest: Following is a table for the present value of an annuity of $1 at compound interest: ​ -Using the tables provided, the internal rate of return of an investment of $210,600 that would generate an annual cash inflow of $50,000 for the next 5 years is

A) 6%
B) 10%
C) 12%
D) 14%

E) None of the above
F) B) and C)

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Question 22

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A project has estimated annual cash flows of $95,000 for 4 years and is estimated to cost $260,000. Assume a minimum acceptable rate of return of 10%. Using the following tables, determine (a) the net present value of the project and (b) the present value index, rounded to two decimal places.Following is a table for the present value of $1 at compound interest: Following is a table for the present value of an annuity of $1 at compound interest:

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a. $41,150 [($95,000...

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Question 23

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The expected average rate of return for a proposed investment of $6,000,000 in a fixed asset, using straight-line depreciation, a useful life of 20 years, no residual value, and an expected total income of $12,000,000 over the 20 years, is

If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be rejected.

A present value index can be used to rank competing capital investment proposals when the net present value method is used.

Following is a table for the present value of $1 at compound interest: Following is a table for the present value of an annuity of $1 at compound interest: ​ -Using the tables provided, the present value of $25,000 (rounded to the nearest dollar) to be received 4 years from today, assuming an earnings rate of 10%, is

The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines and has asked the accountant to analyze them to determine which of the proposals (if any) meet or exceed the company's policy of a minimum desired rate of return of 10% using the net present value method. Each of the assets has an estimated useful life of 10 years. The accountant has identified the following data: Which of the investments are acceptable?

If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be accepted.

The excess of the cash flowing in from revenues over the cash flowing out for expenses is termed net cash flow.

Match each phrase that follows with the term (a-e) it describes. -Also referred to as capital budgeting A)Capital investment analysis B)Time value of money concept C)Net present value method D)Average rate of return E)Cash payback period

Project A requires an original investment of $50,000. The project will yield cash flows of $15,000 per year for 7 years. Project B has a computed net present value of $13,500 over a 4-year life. Project A could be sold at the end of 4 years for $25,000. (a) Using the present value tables that follow, determine the net present value of Project A over a 4-year life with salvage value assuming a minimum rate of return of 12%. (b) Which project provides the greatest net present value? Following is a table for the present value of $1 at compound interest: Following is a table for the present value of an annuity of $1 at compound interest:

Match each phrase that follows with the term (a-e) it describes. -Recognizes that a dollar today is worth more than a dollar tomorrow A)Capital investment analysis B)Time value of money concept C)Net present value method D)Average rate of return E)Cash payback period

In net present value analysis for a proposed capital investment, the expected future net cash flows are averaged and then reduced to their present values.

Following is a table for the present value of $1 at compound interest: Following is a table for the present value of an annuity of $1 at compound interest: ​ -Using the tables provided, the present value of $6,000 to be received at the end of each of the next 4 years, assuming an earnings rate of 10%, is

A $550,000 capital investment proposal has an estimated life of 4 years and no residual value. The estimated net cash flows are as follows: The minimum desired rate of return for net present value analysis is 12%. The factors for the present value of $1 at compound interest of 12% for 1, 2, 3, and 4 years are 0.893, 0.797, 0.712, and 0.636, respectively.​ Determine the net present value.

A series of equal cash flows at fixed intervals is termed an annuity.

The computations involved in the net present value method of analyzing capital investment proposals are less involved than those for the average rate of return method.

Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis?

A project has estimated annual cash flows of $90,000 for 3 years and is estimated to cost $250,000. Assume a minimum acceptable rate of return of 10%. Using the following tables, determine (a) the net present value of the project and (b) the present value index, rounded to two decimal places.Following is a table for the present value of $1 at compound interest: Following is a table for the present value of an annuity of $1 at compound interest:

A project is estimated to cost $273,840 and provide annual net cash inflows of $60,000 for 7 years. Determine the internal rate of return for this project, using the following present value of an annuity table.