FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 14: Capital Budgeting Decisions

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

True/False

Review LaterAdd Note

Review Later

The required rate of return is the maximum rate of return that an investment project must yield to the acceptable.

Correct Answer

verified

Show Answer

Question 42

True/False

Review LaterAdd Note

Review Later

In calculating the "investment required" for the profitability index, the amount invested should not be reduced by any salvage recovered from the sale of old equipment.

Correct Answer

verified

Show Answer

Question 43

Essay

Review LaterAdd Note

Choudhury Corporation is considering the following three investment projects (Ignore income taxes.): The only cash outflows are the initial investments in the projects.Required:Rank the investment projects using the profitability index.

Layer Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 8%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.Click here to view Exhibit 14B-1, to determine the appropriate discount factor(s) using the tables provided.The net present value of the entire project is closest to:

A company has provided the following data concerning a proposed project (Ignore income taxes.) : Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.The annual cost savings must be closest to: (Round your intermediate calculations to 3 decimal places.)

Oriental Corporation has gathered the following data on a proposed investment project: The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.The simple rate of return on the investment would be:

Morrel University has a small shuttle bus that is in poor mechanical condition. The bus can be either overhauled now or replaced with a new shuttle bus. The following data have been gathered concerning these two alternatives (Ignore income taxes.) : Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.The University could continue to use the present bus for the next seven years. Whether the present bus is used or a new bus is purchased, the bus would be traded in for another bus at the end of seven years. The University uses a discount rate of 12% and the total cost approach to net present value analysis.If the present bus is repaired, the present value of the annual cash operating costs associated with this alternative is closest to:

If the net present value of a project is zero based on a discount rate of 16%, then the internal rate of return is:

The present value of a given future cash flow will decrease as the discount rate decreases.

Stockinger Corporation has provided the following information concerning a capital budgeting project: The company's income tax rate is 30% and its after-tax discount rate is 11%. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.The total cash flow net of income taxes in year 3 is:

Chipps Corporation uses a discount rate of 9% in its capital budgeting. Management is considering an investment in telecommunications equipment with a useful life of 5 years. Excluding the salvage value of the equipment, the net present value of the investment in the equipment is −$530,985. (Ignore income taxes.)Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Required:How large would the salvage value of the telecommunications equipment have to be to make the investment in the telecommunications equipment financially attractive?

The management of Nixon Corporation is investigating purchasing equipment that would cost $538,000 and have a 7 year life with no salvage value. The equipment would allow an expansion of capacity that would increase sales revenues by $374,000 per year and cash operating expenses by $216,000 per year. (Ignore income taxes.)Required:Determine the simple rate of return on the investment. (Round your answer to 1 decimal place.)

Cooney Incorporated has provided the following data concerning a proposed investment project (Ignore income taxes.): The company uses a discount rate of 17%.Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Required:Compute the net present value of the project.

An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project.

Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.) : The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.The simple rate of return for the investment (rounded to the nearest tenth of a percent) is: (Round your answer to 1 decimal place.)

Fossa Road Paving Corporation is considering an investment in a curb-forming machine. The machine will cost $240,000, will last 10 years, and will have a $40,000 salvage value at the end of 10 years. The machine is expected to generate net cash inflows of $60,000 per year in each of the 10 years. Fossa's discount rate is 18%. The net present value of the proposed investment is closest to (Ignore income taxes.) :Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Mcelveen Corporation has provided the following information concerning a capital budgeting project: The company uses straight-line depreciation on all equipment. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting.Click here to view Exhibit 14B-1 to determine the appropriate discount factor(s) using table.The net present value of the project is closest to:

When the net cash inflow is the same every year for a project after the initial investment, the internal rate of return of a project can be determined by dividing the initial investment required in the project by the annual net cash inflow. This computation yields a factor that can be looked up in a table of present values of annuities to find the internal rate of return.

Maurer Corporation is considering a capital budgeting project that would involve investing $200,000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life. Annual incremental sales from the project would be $550,000 and the annual incremental cash operating expenses would be $440,000. A one-time renovation expense of $40,000 would be required in year 3. The company's income tax rate is 30%.The company uses straight-line depreciation on all equipment.The income tax expense in year 3 is:

Padmore Corporation has provided the following information concerning a capital budgeting project: The expected life of the project and the equipment is 3 years and the equipment has zero salvage value. The working capital would be required immediately and would be released for use elsewhere at the end of the project. The company uses straight-line depreciation on all equipment and the depreciation expense on the equipment would be $240,000 per year. Assume cash flows occur at the end of the year except for the initial investments. The company takes income taxes into account in its capital budgeting. The net annual operating cash inflow is the difference between the incremental sales revenue and incremental cash operating expenses.Click here to view Exhibit 14B-1, to determine the appropriate discount factor(s) using the table provided.Required:Determine the net present value of the project. Show your work!