31 which of the following results of net present value analyses is the least accepta 4302656

 

31) Which of the following results of net present value analyses is the least acceptable?

A) $(15,000)

B) $(1,000)

C) $12,000

D) $0

E) $20,000

 

Use the information below to answer the following question(s).

 

Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:

 

Initial investment:
Asset	$80,000
Working capital	$16,000
Operations (per year for four years):
Cash receipts	$80,000
Cash expenditures	$44,000
Disinvestment: Salvage value of drill (end of year four)	$8,000
Discount rate 10 percent

 

Note: Other than the initial investment, cash flows are end of period.

 

32) What is the net present value of the investment?

A) $(25,540)

B) $39,579

C) $34,507

D) $44,000

E) $18,115

33) Project ABC is under consideration. Annual cash flows equal $50,000 per year for 5 years. During the first three years the required rate of return is 2 percent. The required rate of return for cash flows in the final two years is 10 percent.

What is the present value of cash inflows?

A) $250,000

B) $247,730

C) $235,650

D) $209,391

E) $203,642

34) Use the following information to determine which machine to purchase based on net present value.

 

	Machine 1	Machine 2	Machine 3
Initial investment	$225,000	$235,000	$210,000
Annual cash inflows	$50,000	$50,000	$50,000
Useful lives	5 years	4 years	8 years

 

Cost of capital is 10 percent.

A) purchase machine 3

B) purchase machine 2

C) purchase machine 1

D) purchase any of the three machines

E) purchase all three machines

 

35) Investment A requires a net investment of $600,000. The required rate of return is 10 percent for the three-year annuity.

What are the annual cash inflows if the net present value equals 0?

A) $184,842

B) $241,269

C) $249,791

D) $271,316

E) $360,000

36) Upper Darby Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $150,000. The annual cost savings if the new machine is acquired will be $40,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $20,000. Upper Darby Park Department is assuming no tax consequences. If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project?

A) $1,632

B) $12,418

C) $14,050

D) $150,000

E) $70,000

 

37) The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $350,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered.

A) $119,550; yes

B) $69,550; no

C) $1,019,550; yes

D) $326,750; no

E) $500,000; yes

38) Wagner Ltd. is considering investing in a new piece of equipment for its factory. It estimates that annual cash flows would be $17,000 and the equipment would last for 8 years. The company's required rate of return is 12%. What is the most that the company should be willing to invest in this equipment? (Ignore income taxes.)

A) $84,450

B) $136,000

C) $61,280

D) $128,115

E) $94,580

 

39) Easton Ltd. is considering investing in a new piece of machinery for its factory. The machine costs $340,000 and is expected to last 7 years. It estimates that annual cash flows would be $82,000 and the equipment would have a salvage value of $13,000. The company's hurdle rate is 11%. What is the NPV of this investment? (Ignore income taxes.)

A) $87,625

B) $46,400

C) $52,660

D) $234,000

E) $247,000

 

40) Weston Ltd. is considering investing in a new piece of equipment for its factory. It estimates that the machine will generate an additional $120,000 per year in revenues. The contribution margin on these incremental revenues is estimated at 40%. Incremental annual fixed costs are estimated to be $8,200. The equipment would have a salvage value of $14,000 at the end of 6 years. The company's required rate of return is 13%. What is the NPV of this investment if the equipment costs $250,000? (Ignore income taxes.)

A) $2,800

B) ($51,393)

C) $204,803

D) $11,768

E) ($84,173)