Reference no: EM132608222

Question 1: If an asset costs $54280 and is expected to have a $4800 salvage value at the end of its 8-year life, and generates annual net cash inflows of $9200 each year, the cash payback period is

Option 1: 6.4 years.

Option 2: 5.9 years.

Option 3: 5.4 years.

Option 4: 8.0 years.

Question 2: A disadvantage of the cash payback technique is that it

Option 1: ignores obsolescence factors.

Option 2: ignores the cost of an investment.

Option 3: is complicated to use.

Option 4: ignores the time value of money.

Question 3: Sheffield, Inc. is considering purchasing equipment costing $43000 with a 5-year useful life. The equipment will provide cost savings of $9000 and will be amortized using the straight-line method over its useful life with no salvage value. Sheffield, Inc. requires a 11% rate of return. What is the approximate profitability index associated with this equipment? (Record answer to nearest cent)

Present Value of an Annuity of 1 Period

9%             10%           11%              12%            13%             16%

53.890      3.791          3.696            3.605        3.517         3.274

Option 1: 0.81

Option 2: 0.75

Option 3: 0.77

Option 4: 0.79