Diff 2 LO 21 2 EOC Ref E21 16 AACSB Analytic Skills AICPA Business Critical

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