Question

Physician's Pharmacy is considering the purchase of a copying machine which it will make available to arge. The copying machine has an initial cost of $7,500, an estimated useful life of five years, and an estimated salvage value of $500. The estimated annual revenue and expenses relating to operation of the machine are as follows: Revenue ..... $8,000 $5,500 Expenses other than depreciation All revenue will be received in cash; expenses other than depreciation will be paid in cash. Depreciation will be computed by the straight-line method. Answer the following questions. If you select answer d, indicate the correct amount in the space provided. YOU WILL NOT RECEIVE CREDIT FOR YOUR ANSWER UNLESS YOU SHOW YOUR WORK! Refer to the above data. Acquisition of the copying machine is expected to increase Physician's annual net income by: a $1,100. C $600 d Some other amount b $500 5 Refer to the above data. The annual net cash flow expected from the investment in the machine is: a $1,000. c d $500 $2,500 b $600 6 Refer to the above data. The payback period on this investment is estimated at: a 1.125 years. C 3 years. b 75 years. d None of these answers. 7 Refer to the above data. The expected rate of retum on average investment is: a 37.1% C 60% b 331/3% d Some other rate. Refer to the above data. The net present value of the proposed investment, discounted at an annual rate of 15% and rounded to the nearest dollar, is (tables show that using a discount rate of 15%, the present value of $1 due in five years is 0.497, and the present value of a five-year $1 annuity is 3.352): a b $528. $1,128.50 c $11,405). d Some other amount

Answer 1

Hi cost of machine - $7000 life - syears Salvage value = $500 Depredialion pa . 7500 - 500 WS $1400 Revenue $ 8000 Expense Dothes Crepende $5500 ) Depreclion = $ 1400 or $6900 elet Income = $1100 . A is correct to

I 5. Net cash flow - Cash flow - Cash On flow - $8000 - $5500 $ 25000 Dis corect & Groo 6. pay back period & Net Investment Net Inflow RENON = $7000 $200 - 3 years U cu correct. 1200-200 pomodoro

7. Return on Investment $2500 - 33 1/3% $7000 b ois carrect leau. year. o prest value -groo cashflow. Rate - 7800 2500 g 2500 2000 12000x3.352 250 o 8380 - a mut is 2 roo 500 0.497. 248.5 1128.50 . bis carect.
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