Unformatted text preview: al skills 76) Crystal Manufact uring Company provides glassware machines for major department store retailers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of five years and the new equipment has a value of $117,320 with a five-year life. The expected additional cash inflows are $35,000 per year. What is the internal rate of return? A) 10% B) 12% C) 15% D) 20% Answer: C Explanation: C) $
Diff: 2 T C 3 AACSB: Analytical skills 77) Springtim e Flower Company provides flowers and other nursery products fordecorative purposes in medium to large sized restaurants and businesses. The company has been investigating the purchase of a new specially equipped van for deliveries. The van has a value of $62,755 with a seven-year life. The expected additional cash inflows are $13,750 per year. What is the internal rate of return? A) 10% B) 12% C) 15% D) 20% Answer: B Explanation: B) $
Diff: 2 T C 3 AACSB: Analytical skills 78) An important advantage of the net present value method of capital budgeting over the internal rate-of-return method is: A) the net present value method is expressed as a percentage B) the net present values of individual projects can be added to determine the effects of accepting a combination of projects C) There is no D) advantage. Both A and B are correct. Answer: B Diff: 2 Terms: net present value (NPV) method, internal rate-ofreturn (IRR) method Objective: 3 AACSB: Reflective thinking 79) In situations where the required rate of return is not constant for each year of the project, it is advantageous to use: A) the adjusted B) rate-of-return method the internal C) rate-of-return method the net present value method D) sensitivity analysis Answer: C Diff: 2 Terms: required rate of return (RRR), net present value (NPV) method Objective: 3 AACSB: Reflective thinking 80) A "what- technique that examines how a result will change if the original predicted data are not achieved or if an underlying if" assumption changes is called: A) sensitivity B) analysis net present C) value analysis internal rate-of- return analysis D) adjusted rate-of- return analysis Answer: A Diff: 1 Terms: capital budgeting, sensitivity analysis Objective: 3 AACSB: Reflective thinking...
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