1.

All of the following are capital investment decisions except:

  • acquiring $410,000 of common stock.
  • purchasing equipment for $40,800.
  • paying $509,000 to renovate a restaurant.
  • buying a $4,025,000 manufacturing plant.

2.

Tompkins Company has two investment opportunities. Both investments cost $5,000 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:

Investment I / Investment II
Period 1 / $ / 1,700 / $ / 4,540
Period 2 / 1,700 / 3,120
Period 3 / 3,120 / 3,120
Period 4 / 5,680 / 1,420
Total / $ / 12,200 / $ / 12,200

Select the correct statement.

  • Time value of money techniques are not useful for comparing these investments.
  • Tompkins should choose Investment I because of the time value of money.
  • Tompkins should be indifferent between the two investments because they provide the same total cash inflows.
  • Tompkins should choose Investment II because it generates more immediate cash inflows.

3.

What amount of cash must be invested today in order to have $31,000 at the end of one year assuming the rate of return is 9%? (Do not round your PV factors. Round your final answer to 2 decimal places.)

  • $28,440.37
  • $27,900.00
  • $28,210.00
  • $26,092.08

4.

What amount of cash would result at the end of one year, if $26,000 is invested today and the rate of return is 9%?(Do not round your PV factors.)

  • $26,000
  • $28,080
  • $28,340
  • $23,660

5.

Darlene projects that she can get $170,000 cash per year for 5 years on a real estate investment project. If Darlene wants to earn a rate of return of 9%, what is the maximum that she should pay for the investment? (Do not round your PV factors. Round your answer to the nearest dollar.)

  • $661,241
  • $773,500
  • $550,752
  • $110,488

6.

Henry has $570,000 to invest in a 5 year annuity. Assuming the time value of money is 9%, what amount will Henry receive in cash each year? (Do not round your PV factors. Round your answer to the nearest dollar.)

  • $114,000
  • $124,260
  • $146,543
  • None of these answers are correct.

7.

Which of the following cash flow patterns represents of an annuity?

Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6
A) / $ / 1,260 / $ / 1,260 / $ / 1,260 / $ / 1,260 / $ / 1,260 / $ / 1,260
B) / $ / 890 / $ / -0- / $ / 890 / $ / 890 / $ / 890 / $ / -0-
C) / $ / 230 / $ / 330 / $ / 430 / $ / 530 / $ / 630 / $ / 730
  • A
  • B
  • C
  • Any of the answers can represent an annuity.

8.

Chartreuse Company has two investment opportunities. Both investments cost $5,300 and will provide the following net cash flows:

Year / Investment A / Investment B
1 / $3,150 / $3,150
2 / 3,150 / 4,180
3 / 3,150 / 2,150
4 / 3,150 / 1,060

The total present value of Investment A's cash flows assuming an 10% minimum rate of return is(Do not round your PV factors and intermediate calculations. Round your answer to the nearest whole dollar.):

  • $3,150.
  • $8,658.
  • $9,985.
  • $10,984.

9.

Henrico Company has two investment opportunities. Both investments cost $5,800 and will provide the same total future cash inflows. The cash receipt schedule for each investment is given below:

Investment I / Investment II
Period 1 / $ / 1,400 / $ / 1,400
Period 2 / 1,400 / 2,480
Period 3 / 2,400 / 3,560
Period 4 / 4,640 / 2,400
Total / $ / 9,840 / $ / 9,840

The net present value of Investment II assuming an 9% minimum rate of return would be which of the following amounts? (Do not round your PV factors and intermediate calculations. Round your answer to the nearest whole dollar.)

  • $9,840
  • $7,821
  • $7,603
  • $2,021

10.

An investment that costs $32,000 will produce annual cash flows of $10,680 for a period of 4 years. Given a desired rate of return of 8%, the investment will generate a (Do not round your PV factors and intermediate calculations. Round your answer to the nearest whole dollar.):

  • negative net present value of $35,374.
  • negative net present value of $3,374.
  • positive net present value of $35,374.
  • positive net present value of $3,374.

11.

An investment that costs $26,500 will produce annual cash flows of $5,300 for a period of 6 years. Further, the investment has an expected salvage value of $3,150. Given a desired rate of return of 12%, the investment will generate a (Do not round your PV factors and intermediate calculations. Round your answer to the nearest whole dollar.):

  • negative net present value of $3,114.
  • negative net present value of $26,500.
  • positive net present value of $21,790.
  • negative net present value of $1,596.

12.

Tawanna is considering starting a small business. She plans to purchase equipment costing $143,000. Rent on the building used by the business will be $23,000 per year while other operating costs will total $28,800 per year. A market research specialist estimates that Tawanna's annual sales from the business will amount to $87,000. Tawanna plans to operate the business for 6 years. Disregarding the effects of taxes, what will be the amount of annual net cash flow generated by the business?

  • $35,200
  • $51,800
  • $87,000
  • None of these answers are correct.

13.

Britannia Company has two investment opportunities. A cash flow schedule for the investments is provided below:

Year / Investment A / Investment B
0 / ($5,900) / ($7,350)
1 / 2,360 / 3,540
2 / 2,360 / 2,360
3 / 2,360 / 2,360
4 / 2,360 / 1,180

Considering the unequal investments, which of the following techniques would be most appropriate for choosing between Investment A and Investment B?

  • Payback technique
  • Present value index
  • Net present value technique
  • None of these answers are correct.

14.

Mountain Brook Company is considering two investment opportunities whose cash flows are provided below:

Year / Investment A / Investment B
0 / ($16,750) / ($11,100)
1 / 5,630 / 5,630
2 / 5,630 / 4,560
3 / 5,630 / 3,770
4 / 4,560 / 1,840

The company's hurdle rate is 10%. What is the present value index of Investment B?(Do not round your PV factors and intermediate calculations. Round your answer to 2 decimal places.)

  • 0.86
  • 1.42
  • 1.17
  • None of these answers are correct.

15.

An investment that costs $5,100 will produce annual cash flows of $2,060 for a period of 4 years. Given a desired rate of return of 12%, the investment will generate a present value index of (Do not round your PV factors and intermediate calculations. Round your answer to 3 decimal places.):

  • 0.815.
  • 1.227.
  • 2.476.
  • 4.408.

15.

An investment that costs $5,100 will produce annual cash flows of $2,060 for a period of 4 years. Given a desired rate of return of 12%, the investment will generate a present value index of (Do not round your PV factors and intermediate calculations. Round your answer to 3 decimal places.):

  • 0.815.
  • 1.227.
  • 2.476.
  • 4.408.

17.

Synthesis Company is considering the purchase of a piece of equipment that costs $112,200. The equipment would be depreciated on a straight-line basis to its expected salvage value of $6,200 over its 10-year useful life. Assuming a tax rate of 40%, what is the annual amount of the depreciation tax shield provided by this investment?

9_03_2015_QC_CS-21366

$10,600

$6,360

$4,240

None of these answers are correct.

18.

Nielsen Company is considering the purchase of an asset that will provide a depreciation tax shield of $21,800 per year for 10 years. Assuming the company is subject to a 40% tax rate during the period, and a zero salvage value, what is the depreciable cost of the new asset?

  • $218,000
  • $363,333
  • $545,000
  • Can't be determined from the information provided

19.

Phoenix Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $15,300 per year for 3 years. Assuming that Phoenix's required rate of return is 8%, what is the present value of these cash inflows? (Do not round your PV factors and intermediate calculations. Round your final answer to the nearest dollar.)

  • $39,352
  • $36,437
  • $42,500
  • $39,430

20.

Lane Company is considering purchasing a capital investment that is expected to provide annual cash inflows of $10,700 per year for 3 years. Assuming that the required rate of return is 7%, what is the present value of these cash inflows? (Do not round your PV factors and intermediate calculations. Round your final answer to the nearest dollar.)

  • $28,080
  • $30,000
  • $26,203
  • $28,037