examchap12

# examchap12 - 56,865 Salvage value of equipment 5 3,000 x...

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Folk Exam Questions - Chapter 12 1. Lynch Company has gathered the following data on a proposed investment project: Investment required in equipment \$1,200,000 Annual cash inflows \$240,000 Salvage value \$-0- Life of the investment 10 years Discount rate 10% What is the net present value on this investment? Solution: Years Cash Flows 10% Factor Present Value Investment in equipment Now \$(1,200,000) x 1.000 = \$(1,200,000) Annual net cash inflows 1-10 240,000 x 6.145 = 1,474,800 Net present value \$ 274,800 2. The following data pertain to an investment that is being considered by the management of Cole Company: Cost of the investment \$56,865 Life of the project 5 years Annual cost savings \$ 15,000 Estimated salvage value \$ 3,000 Discount rate 10% What is the net present value of the proposed investment? Solution: Years Cash Flows 10% Factor Present Value Investment in equipment Now \$(56,865) x 1.000 = \$(56,865) Annual net cash inflows 1-5 15,000 x 3.791 =

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Unformatted text preview: 56,865 Salvage value of equipment 5 3,000 x 0.621 = 1,863 Net present value \$ 1,863 3. Lynch Company has gathered the following data on a proposed investment project: Investment required in equipment \$1,200,000 Annual cash inflows \$240,000 Salvage value \$-0-Life of the investment 10 years Discount rate 10% What is the payback period for the investment? Solution: Payback period = Required investment ÷ Annual cash inflows Payback period = \$1,200,000 ÷ \$240,000 = 5 years 4. Lynch Company has gathered the following data on a proposed investment project: Investment required in equipment \$1,200,000 Annual cash inflows \$240,000 Salvage value \$-0-Life of the investment 10 years Discount rate 10% What is the simple rate of return on the investment? Solution: Annual cash flows ÷ Investment required = Simple rate of return \$240,000 ÷ \$1,200,000 = 20%...
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examchap12 - 56,865 Salvage value of equipment 5 3,000 x...

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