Thefollowinginformationisavailableontheinvestmenttheco

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Unformatted text preview: 81) Investmen requires a net investment of $800,000. The required rate of return is 12% for the four-year annuity. What are the annual t A cash inflows if the net present value equals 0? (rounded) A) $189,483 B) $263,418 C) $274,848 D) $ 295,733 Answer: B Explanation: B) 3 Diff: 3 T 3 AACSB: Analytical skills 82) The minimum annual acceptable rate of return on an investment is the: A) accrual B) accounting rate of return hurdle rate C) internal rate of return D) net present value Answer: B Diff: 2 Terms: hurdle rate Objective: 3 AACSB: Reflective thinking 83) Upper Darby Park Departme nt is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $144,192. The 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 zero. Upper Darby Park Department is assuming no tax consequences. What is the internal rate of return for Upper Darby Park Department? A) 10% B) 12% C) 14% D) 16% Answer: B Explanation: B) P Diff: 3 T 3 AACSB: Analytical skills 84) The method that measures the time it will take to recoup, in the form of future cash inflows, the total dollars invested in a project is called: A) the accrued B) accounting rate-of-return method payback method C) internal rate-of- return method D) the book-value method Answer: B Diff: 1 Terms: payback Objective: 4 AACSB: Reflective thinking 85) The net initial investment for a piece of construction equipment is $1,000,000. Annual cash inflows are expected to increase by $200,000 per year. The equipment has an 8-year useful life. What is the payback period? A) 8 years B) 7 years C) 6 years D) 5 years Answer: D Explanation: D) $ Diff: 2 T 4 AACSB: Analytical skills 86) The payback method of capital budgeting approach to the investment decision highlights: A) cash flow over the life of the investment B) the liquidity of the investment C) the tax savings of the depreciation amounts D) having as lengthy payback time as possible Answer: B Diff: 2 Terms: payback Objective: 4 AACSB: Reflective thinking 87) Upper Darby Park Departme nt is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $144,192. The 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...
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This note was uploaded on 09/18/2010 for the course ACCT 424 taught by Professor All during the Spring '10 term at DeVry Long Beach.

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