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Exam 10: Capital Investment Analysis

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Question 61

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The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $200,000 for the 5 years.The expected average rate of return on investment is 25.0%.

A) True
B) False

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Question 62

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Proposals A and B each cost $600,000 and have 5-year lives.Proposal A is expected to provide equal annual net cash flows of $159,000, while the net cash flows for Proposal B are as follows: Determine the cash payback period for each proposal.Round answers to two decimal places.

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Proposal A: $600,000/$159,000 ...

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Question 63

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The methods of evaluating capital investment proposals can be grouped into two general categories that can be referred to as 1 average rate of return and 2 cash payback methods.

Which of the following are present value methods of analyzing capital investment proposals?

Dickerson Co.is evaluating a project requiring a capital expenditure of $810,000.The project has an estimated life of 4 years and no salvage value.The estimated net income and net cash flow from the project are as follows:

Only managers are encouraged to submit capital investment proposals because they know the processes and are able to match investments with long-term goals.

Which of the following is an advantage of the cash payback method?

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

Match each definition that follows with the term a-f it defines. -A measure of the average income as a percent of the average investment

Which of the following are two methods of analyzing capital investment proposals that both ignore present value?

The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000.The company's desired rate of return is 10%.The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively.In addition to the foregoing information, use the following data in determining the acceptability of this investment: The net present value for this investment is

Match each of the methods that follow with the correct category a-b. -Internal rate of return method

Match each of the methods that follow with the correct category a-b. -Net present value method

An anticipated purchase of equipment for $490,000 with a useful life of 8 years and no residual value is expected to yield the following annual net incomes and net cash flows: What is the cash payback period?

The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $200,000 for the 5 years.The expected average rate of return on investment is 50%.

An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next 4- years.What is the investment's internal rate of return? Below is a table for the present value of $1 at compound interest. Below is a table for the present value of an annuity of $1 at compound interest.

If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 4 years.

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

The formula for calculating the present value factor for an annuity of $1 is

The average rate of return for this investment is