93 answer proposal x payback 180 00075 000 24 years

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93) Answer: Proposal X payback = $180 000/$75 000 = 2.4 years Proposal Y Cash Savings Savings Accumulated To be Recovered Year 0 $120 000 Year 1 $50 000 $50 000 70 000 Year 2 48 000 98 000 22 000 Year 3 44 000 142 000 0 Proposal Y payback = 2 years plus $22 000/$44 000 or 2.5 years Proposal Z payback = ($190 000 + $10 000)/$80 000 = 2.5 years Explanation: 94) Port Phillip Fisheries need a new navigation system for their fishing boat. They have received three proposals, with related facts as follows: Proposal A Proposal B Proposal C Initial investment in equipment $90 000 $90 000 $90 000 Annual cash increase in operations: Year 1 80 000 45 000 90 000 Year 2 10 000 45 000 0 Year 3 45 000 45 000 0 Salvage value 0 0 0 Estimated life 3 yrs 3 yrs 1 yr The company uses straight - line depreciation for all capital assets. Required: a. Compute the payback period, net present value, and accrual accounting rate of return with initial investment, for each proposal. Use a required rate of return of 14%. b. Rank each proposal 1, 2, and 3 using each method separately. Which proposal is best? 94) 40
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Why? Answer: 41
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Answer: Explanation: 42
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95) Rockhampton Engineering needs to overhaul its drill press or buy a new one. The facts have been gathered, and they are as follows: Current Machine New Machine Purchase Price, New $80 000 $100 000 Current book value 30 000 Overhaul needed now 40 000 Annual cash operating costs 70 000 40 000 Current salvage value 20 000 Salvage value in five years 5000 20 000 Required: Which alternative is the most desirable with a current required rate of return of 20%? Show computations, and assume no taxes. 95) Answer: Present value of keeping current system : Predicted Cash Flows Year(s) PV Factor PV of Cash Flows Overhaul $(40 000) 0 1.000 $(40 000) Annual operations (70 000) 1 - 5 2.991 (209 370) Salvage value 5000 5 0.402 2010 Net present value $(247 360) Present value of new system : Predicted Cash Flows Year(s) PV Factor PV of Cash Flows Investment $(100 000) 0 1.000 $(100 000) Salvage value, old 20 000 0 1.000 20 000 Annual operations (40 000) 1 - 5 2.991 (119 640) Salvage value 20 000 5 0.402 8040 Net present value $(191 600) Buying the new equipment is the most desirable by $55 760 ($247 360 - $191 600). Explanation: TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 96) The 'evaluate each possible course of action and select the best one' stage of the capital budgeting process consists of determining which investment yields the greatest benefit and the least cost to the organisation. 96) Answer: True False Explanation: 97) Discounted cash flow methods measure all the expected future cash inflows and outflows of a project as if they occurred at equal intervals over the life of the project. 97) Answer: True False Explanation: As if they occurred at a single point in time. 43
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98) Discounted cash flow methods focus on operating profit. 98) Answer: True False Explanation: Discounted cash flow methods focus on cash inflows and cash outflows. 99) The purchase of a corporation's customer base is an investment in a intangible asset. 99) Answer: True False Explanation: 100) Cash received from the disposal of old equipment is not relevant to a decision to buy replacement equipment.
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