1)
A company is considering the purchase of new equipment for
$90,000. The projected annual net cash flows are $35,500. The
machine has a useful life of 3 years and no salvage value.
Management of the company requires a 8% return on investment. The
present value of an annuity of $1 for various periods
follows:
Period | Present value of an annuity of $1 at 8% |
1 | 0.9259 |
2 | 1.7833 |
3 | 2.5771 |
What is the net present value of this machine assuming all cash
flows occur at year-end?
Multiple Choice
$30,000
$4,500
$1,487
$34,500
$88,910
2)
The following present value factors are provided for use in this
problem.
Periods | Present Value of $1 at 8% |
Present Value of an Annuity of $1 at 8% |
||||
1 | 0.9259 | 0.9259 | ||||
2 | 0.8573 | 1.7833 | ||||
3 | 0.7938 | 2.5771 | ||||
4 | 0.7350 | 3.3121 | ||||
Xavier Co. wants to purchase a machine for $36,900 with a four year
life and a $1,200 salvage value. Xavier requires an 8% return on
investment. The expected year-end net cash flows are $11,900 in
each of the four years. What is the machine's net present
value?
Multiple Choice
$3,396.
$2,514.
$40,296.
$(3,396).
$(2,514).
3)
A company is considering the purchase of a new machine for $57,000. Management predicts that the machine can produce sales of $16,900 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $7,100 per year including depreciation of $4,900 per year. Income tax expense is $3,920 per year based on a tax rate of 40%. What is the payback period for the new machine?
Multiple Choice
3.37 years.
6.40 years.
5.29 years.
11.63 years.
1.
Net present value = Present value of cash inflow - Initial investment
Net present value = $35,500*2.5771 - $90,000
Net present value = $91,487 - 90,000 = $1,487
2.
Net present value = $11,900*3.3121 + 1,200*0.7350 - $36,900
Net present value = $39,414 + 882 - $36,900 = $3,396
3.
Pay back period = Initial investment / Annual cash inflow
Annual cash inflow = $16,900 - 7,100 - 3,920 + 4,900 = $10,780
Pay back period = $57,000 / 10,780 = 5.29 years
1) A company is considering the purchase of new equipment for $90,000. The projected annual net...
The following present value factors are provided for use in this problem. Periods Present Value of $1 at 8% 0.9259 0.8573 0.7938 0.7350 Present Value of an Annuity of $1 at 88 0.9259 1.7833 2.5771 3.3121 Xavier Co. wants to purchase a machine for $36,600 with a four year life and a $1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $11,600 in each of the four years. What is the machine's...
The following present value factors are provided for use in this problem. Periods Present Value of $1 at 8% Present Value of an Annuity of $1 at 8% 1 0.9259 0.9259 2 0.8573 1.7833 3 0.7938 2.5771 4 0.7350 3.3121 Xavier Co. wants to purchase a machine for $37,100 with a four year life and a $1,100 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,100 in each of the four years....
The following present value factors are provided for use in this problem. Periods Present Value of $1 at 8% Present Value of an Annuity of $1 at 8% 1 0.9259 0.9259 2 0.8573 1.7833 3 0.7938 2.5771 4 0.7350 3.3121 Cliff Co. wants to purchase a machine for $48,000, but needs to earn an 8% return. The expected year-end net cash flows are $17,000 in each of the first three years, and $21,000 in the fourth year. What is the...
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