ACCT 102 Ch 11 & 13

A company is considering the purchase of equipment for $270,000. Projected annual net cash flow from this equipment is $61,200 per year. The payback period is:

• .2 years

• 5.0 years

• 4.4 years

• 2.3 years

• 3.9 years

A disadvantage of using the payback period to compare investment alternatives is that it:

• ignores cash flows beyond the payback period

• cannot be used to compare alternatives with different initial investments

• cannot be used when cash flows re not uniform

• involves the time value of money

• cannot be used if a company records depreciation

A company buys a machine for $180,000 that has an expected life of nine years and no salvage value. The company expects an annual income of $8,550. What is the accounting rate of return?

• 4.75%

• 42.75%

• 2.85%

• 9.50%

• 6.65%

The minimum acceptable rate of return for an investment decision is called the

• hurdle rate

• payback rate

• internal rate of return

• average rate of return

• break-even rate of return

A company is considering the purchase of a machine costing $90,000. The annual net cash flow from the machine is $33,600. Assume cash flows are received at each year-end, and the machine has a useful life of three years with zero salvage value. Management requires a 12% return on its investments. What is the net present value of this machine?

• $60,444

• $80,700

• $(88,560)

• $90,000

• $(9,300)

Porter Company is analyzing two potential investments.

The payback period in years (rounded to 2 decimal places) for Project X is:

• 2.00.

• 3.83.

• 3.50.

• 2.83.

• 4.00.

The following relates to a proposed equipment purchase:

The annual income amount used to calculate the accounting rate of return is:

• $46,100

• $11,100

• $12,100

• $74,000

• $48,950

Butler Corporation is considering the purchase of new equipment costing $30,000. The projected annual income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 12% return on its investments. The present value of an annuity of $1 for different periods follows:

What is the net present value of the machine (rounded to the nearest whole dollar)?

• $24,018.

• $(3,100).

• $30,000.

• $26,900.

• $(29,520).

Alfarsi Industries uses the net present value method to make investment decisions and requires a 15% annual return on all investments. The company is considering two different investments. Each require an initial investment of $15,000 and will produce cash flows as follows:
 The present value factors of $1 each year at 15% are:
 

1 0.8696

2 0.7561

3 0.6575

The present value of an annuity of $1 for 3 years at 15% is 2.2832. The net present value (rounded to the nearest whole dollar) of Investment A is:

• $18,266.

• $(15,000).

• $9,000.

• $(20,549).

• $3,266.

A company's sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:

• 87%.

• 100%.

• 115%.

• 15%.

• 13%.