Reference no: EM132938887

Questions -

Q1) Equipment will be purchased at a cost of 250,000. It will have no salvage value. The cash flows are expected to be 37,000, 48,000, 65,000 71,000 73,000 and 53,000 over the life of the equipment. What is the payback period?

a. 5.25 years

b. 3.43 years

c. 6.00 years

d. 4.40 years

Q2) The investment required for the project profitability index should:

A. be reduced by the amount of any salvage recovered from the sale of old equipment.

B. be reduced by the amount of any salvage recovered from the sale of the new equipment at the end of its useful life.

C. be reduced by the amount of any salvage recovered from the sale of both the old and new equipment.

D. not be adjusted for the salvage value of old or new equipment.

Q3) The Mellow Machine Company is considering the addition of a computerized lathe to its equipment inventory. The initial cost of the equipment is P600,000, and the lathe is expected to have a useful life of five years and no salvage value. The cost savings and increased capacity attributable to the machine are estimated to generate increases in the firm's annual cash inflows (before considering depreciation) of P180,000. The machine will be depreciated as follows for tax purposes:

Year Depreciation

1 P200,000

2 266,700

3 88,860

4 44,440

Mellow is currently in the 40 percent tax bracket. A 10 percent after-tax rate of return is desired. What is the accounting rate of return based on initial investment?

a. 3.0

b. 2.21

c. 6.0

d. 12.0

Q4) Forming working capital policy involves a series of

a. financial choices

b. profit-risk tradeoffs

c. none of these

d. capital bugeting decisions

Q5) An organization has an opportunity to establish a zero balance account system using four different regional banks. The total amount of the maintenance and transfer fees is estimated to be 8,000 per annum. The organization believes that it will increase the float on its operating disbursements by an average of two days, and its cost of short-term funds is 4%. Assuming the organization estimates its average daily operating disbursements to be 80,000 what decision should the organization make regarding this opportunity?

a. open the zero balance accounts due to an estimated savings of 1,200

b. open the zero balance accounts due to an estimated savings of 1,200

c. do not open the zero balance account due to an excess of costs over benefits of 1,600

d. do not open the zero balance account due to an additional costs of 8,000

Q6) What is the approximate annual cost of foregoing the cash discount if the credit term is 2/15, net 40 and the company pays end of 50 days? use 360 days a year

a. 29.39

b. 20.57

c. 28.80

d. 20.99