Reference no: EM131765683
Question 1 - A company projects an increase in net income of $225,000 each year for the next five years if it invests $900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $300,000. What is the annual rate of return on this investment?
A) 25.0%
B) 37.5%
C) 50.0%
D) 57.5%
Question 2 - Benaflek Co. purchased some equipment 3 years ago. The company's required rate of return is 12%, and the net present value of the project was $(450). Annual cost savings were: $5,000 for year 1; $4,000 for year 2; and $3,000 for year 3. The amount of the initial investment was
Present Value PV of an Annuity
Year of 1 at 12% of 1 at 12%
1 .893 .893
2 .797 1.690
3 .712 2.402
A) $10,239.
B) $9,158.
C) $10,058.
D) $9,339.
Question 3 - Fehr Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Blue Project Gray
Initial investment $400,000 $600,000
Annual net income 20,000 42,000
Net annual cash inflow 100,000 142,000
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 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111
The net present value for Project Gray is
A) $618,410.
B) $182,912.
C) $100,000.
D) $18,410.
Question 4 - Fehr Company is considering two capital investment proposals. Estimates regarding each project are provided below:
Project Blue Project Gray
Initial investment $400,000 $600,000
Annual net income 20,000 42,000
Net annual cash inflow 100,000 142,000
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 3.890 3.791 3.696 3.605
6 4.486 4.355 4.231 4.111
The internal rate of return for Project Gray is approximately
A) 10%.
B) 11%.
C) 12%.
D) 9%.