Reference no: EM133161845

Questions -

Q1) A company is considering the purchase of some equipment. In the second year of operation, it is expected that the equipment will cause an increase in sales revenue of $200,000 and an increase in cash expenses of $120,000. CCA for the equipment will be $60,000. The tax rate for the company is 40%. What is the effect on cash flow from the equipment in Year 2? With Explanation

a) $0

b) $12,000

c) $48,000

d) $72,000

Q2) The Dress Company wants to purchase a new cutting machine. The investment is expected to generate annual cash flows of $250,000. The required rate of return is 10%. The machine is expected to have a useful life of four years. What is the maximum amount the company should pay for the machine?

a) $170,750

b) $546,400

c) $759,000

d) $792,475

Q3) The net initial investment for a new integrated computer system is $2 million. Annual cash flows are expected to increase by $800,000 per year. The system has a five-year useful life. What is the payback period?

a) 2.00 years

b) 2.50 years

c) 3.00 years

d) 4.00 years