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Unformatted text preview: annual cost savings if the new machine is acquired will be $40,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $20,000. Upper Darby Park Department is assuming no tax consequences. If Upper Darby Park Department has a required rate of return of 10%, which of the following is closest to the present value of the project? A) $1,632 B) $12,418 C) $14,060 D) $150,000 Answer: C Explanation: C) (
Diff: 3 T 3 AACSB: Analytical skills 68) Shirt Company wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual cash inflows of $300,000. The required rate of return is 12% and the current machine is expected to last for four years. What is the maximum dollar amount Shirt Company would be willing to spend for the machine, assuming its life is also four years? Income taxes are not considered. A) $507,000 B) $720,600 C) $791,740 D) $911,100 Answer: D Explanation: D) X
Diff: 3 T 3 AACSB: Analytical skills 69) The Zeron Corporati on wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $350,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. A) $119,550; yes B) $69,550; no C) $1,019,550; yes D) $326,750; no Answer: A Explanation: A) Y Y Y Diff: 3 T 3 AACSB: Analytical skills 70) Wet and analyzing the purchase of a new drill. Information on the proposal is provided below. Wild Initial investment: Water Asset $160,000 Company Working capital $ 32,000 drills Operations (per year for four years): small Cash receipts $160,000 commerci Cash expenditures $ 88,000 al water Disinvestment: wells. The Salvage value of drill (existing) $ 16,000 c...
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