JD, Inc., is considering the purchase of production equipment that costs $400,000. The equipment is expected to generate annual cash inflows of $125,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 12 percent.
Refer to Figure 13-6. JD's approximate internal rate of return of the project is
a. / 16%b. / 15%
c. / 12%
d. / 13%
Figure 13-3
Glady, Inc., is considering the purchase of production equipment that costs $800,000. The equipment is expected to generate annual cash inflows of $250,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 14 percent.
Refer to Figure 13-3. The approximate internal rate of return of Glady's project is
a. / 16%b. / 25%
c. / 20%
d. / 24%
Refer to Figure 13-2. The net present value of the project is
a. / $36,411b. / $46,220
c. / $44,200
d. / $24,500
Figure 13-1
A project requires an investment of $90,000 in equipment. Annual cash inflows of $15,000 are expected to occur for the next ten years. No salvage value is expected.
Refer to Figure 13-1. Using the initial capital investment, the accounting rate of return for the project would be
a. / 6.25%b. / 16.67%
c. / 26.67%
d. / 6.67%
Figure 13-1
A project requires an investment of $90,000 in equipment. Annual cash inflows of $15,000 are expected to occur for the next ten years. No salvage value is expected.
Refer to Figure 13-1. If the cash inflows occur at the end of each year, the net present value of the project using a 12 percent discount rate would be
a. / ($12,210)b. / ($5,250)
c. / $12,210
d. / $5,250
Refer to Figure 13-5. The net present value of the project is
a. / $393b. / $6,412
c. / ($3,215)
d. / $6,102
Glady, Inc., is considering the purchase of production equipment that costs $800,000. The equipment is expected to generate annual cash inflows of $250,000. The equipment is expected to have a useful life of five years with no salvage value. The firm's cost of capital is 14 percent.Glady's accounting rate of return based on the initail investment would be
a. / 31.25%b. / 11.25%
c. / 14%
d. / 20%
The Bradshaw Company is considering purchasing equipment for $78,000. This equipment will save the company $22,000 in operating costs annually. The payback period for this equipment is
a. / 4 yearsb. / 0.3 years
c. / 2.2 years
d. / 3.5 years
Ducky Pizza Restaurant purchases a van to deliver pizzas to their customers. The van costs $28,000 and is projected to increase revenues by $10,000 a year and to increase costs by $4,500. The payback period for this van is
a. / 6.2 yearsb. / 2.8 years
c. / 0.4 years
d. / 5.1 years
Firms may select projects with short paybacks because
a. / projects with longer paybacks may be riskierb. / shorter paybacks may help reduce liquidity problems
c. / if the risk of obsolescence is high, the firm may want to recover the funds rapidly
d. / All of these choices are correct.