CH 12 Quiz

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Question #1

Eddie Corporation is considering the following three investment projects (Ignore income taxes.):

Particulars – Project C – Project D – Project E
Investment required – $ 12,700 – $ 58,000 – $ 103,000
Present value of cash inflows – $ 15,580 – $ 85,940 – $ 121,810

The profitability index of investment project D is closest to:

A 1.48

B 0.33

C 0.48

D 0.52

Question #2

Oriental Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):

Investment in depreciable equipment – $ 510,000
Annual net cash flows – $ 90,000
Life of the equipment – 10 years
Salvage value – $ 0
Discount rate – 7%

The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period for the investment would be: (Round your answer to 1 decimal place.)

A 1.0 years

B 0.2 years

C 3.7 years

D 5.7 years

Question #3

The management of Ro Corporation is investigating automating a process. Old equipment, with a current salvage value of $27,000, would be replaced by a new machine. The new machine would be purchased for $432,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $149,000 per year in cash operating costs. The simple rate of return on the investment is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)

A 34.5%

B 17.8%

C 19.0%

D 16.7%

Question #4

The management of Leitheiser Corporation is considering a project that would require an initial investment of $42,000. No other cash outflows would be required. The present value of the cash inflows would be $54,830. The profitability index of the project is closest to (Ignore income taxes.):

A 1.31

B 0.31

C 0.23

D 0.69

Question #5

The following data pertain to an investment proposal (Ignore income taxes.):

Cost of the investment – $ 48,000
Annual cost savings – $ 14,000
Estimated salvage value – $ 4,000
Life of the project – 5 years
Discount rate – 10%

The net present value of the proposed investment is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

A $2,484

B $30,000

C $5,074

D $7,558

Question #6

The management of Penfold Corporation is considering the purchase of a machine that would cost $270,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 12% on all investment projects.

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.

The net present value of the proposed project is closest to (Ignore income taxes.): (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

A ($77,514)

B ($11,700)

C ($29,886)

D ($53,700)

Question #7

Moates Corporation has provided the following data concerning an investment project that it is considering:

Initial investment $ 190,000
Annual cash flow $ 120,000 per year
Expected life of the project 4 years
Discount rate 9%

The net present value of the project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

A ($70,000)

B $190,000

C ($198,680)

D $198,680

Question #8

A company with $810,000 in operating assets is considering the purchase of a machine that costs $86,000 and which is expected to reduce operating costs by $18,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)

A 45 years

B 9.4 years

C 4.8 years

D 0.21 years

Question #9

The management of Lanzilotta Corporation is considering a project that would require an investment of $255,000 and would last for 6 years. The annual net operating income from the project would be $109,000, which includes depreciation of $32,000. The scrap value of the project’s assets at the end of the project would be $16,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)

A 2.3 years

B 3.0 years

C 1.8 years

D 1.6 years

Question #10

Olinick Corporation is considering a project that would require an investment of $284,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.):

Sales $ 239,000
Variable expenses 23,000
Contribution margin 216,000
Fixed expenses:
Salaries 26,000
Rents 39,000
Depreciation 34,000
Total fixed expenses 99,000
Net operating income $ 117,000

The scrap value of the project’s assets at the end of the project would be $16,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to: (Round your answer to 1 decimal place.)

A 2.2 years

B 1.6 years

C 1.9 years

D 2.4 years

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