# Diff 2 lo 21 2 eoc ref e21 16 aacsb analytic skills

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Diff: 2LO:21-2EOC Ref:E21-16AACSB:Analytic SkillsAICPA Business:Critical ThinkingAICPA Functional:Measurement20) Atlantic Company is considering investing in specialized equipment costing \$360,000. The equipment has auseful life of 5 years and a residual value of \$45,000. Depreciation is calculated using the straight-line method. Theexpected net cash inflows from the investment are:Year 1\$160,000Year 2130,000Year 3100,000Year 455,000Year 540,000\$485,000What is the rate of return on the investment?A) 16.8%B) 23.9%C) 18.9%D) 12.4%Answer:Explanation:A) Calculations:\$485,000 - (\$360,000 - \$45,000) = \$170,000\$170,000/5 = \$34,000(\$360,000 + \$45,000)/2 = \$202,500\$34,000/\$202,500 = 16.8%A
Diff: 3LO:21-2EOC Ref:E21-17AACSB:Analytic SkillsAICPA Business:Critical ThinkingAICPA Functional:Measurement11
21) Landmark Company is considering an investment in new equipment costing \$360,000. The equipment will bedepreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of \$70,000 thefirst year, \$80,000 the second year, and \$120,000 every year thereafter until the fifth year. What is the paybackperiod for this investment? The residual value is zero.C
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Diff: 2LO:21-2EOC Ref:E21-16AACSB:Analytic SkillsAICPA Business:Critical ThinkingAICPA Functional:Measurement22) Pearl Manufacturing is considering an investment in equipment costing \$660,000. The equipment will bedepreciated on the straight-line basis over an eight-year period with an estimated residual value of \$120,000. Theinvestment is expected to generate annual net cash inflows of \$135,000 for 8 years. Using the rate of return model,what is the minimum average annual operating income that must be generated from this investment in order toachieve a 14% rate of return?C
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Diff: 3LO:21-2EOC Ref:E21-17AACSB:Analytic SkillsAICPA Business:Critical ThinkingAICPA Functional:Measurement12

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