a.P3,940c.P13,320b.P7,880d.P26,640Questions 81 through 83 are based on the following information.BarfieldHefty Investment Co. is considering an investment in a labor-savingmachine. Information on this machine follows:Cost$30,000Salvage value in five years$0Estimated life5 yearsAnnual depreciation$6,000Annual reduction in existing costs$8,00081. (Present value tables needed to answer this question.) What is theinternal rate of return on this project (round to the nearest 1/2%)?a.37.5%c.10.5%b.25.0%d.13.5%82.(Present value tables needed to answer this question.) Assume forthis question only that Hefty Co. uses a discount rate of 16 percentto evaluate projects of this type. What is the project's net presentvalue?a.$(6,283)c.$(23,451)b.$(3,806)d.$(22,000)83.What is the payback period on this investment?a.4 yearsc.3.75 yearsb.2.14 yearsd.5 yearsPayback, NPV, IRR & Cash FlowsQuestions 1 thru 3 are based on the following information.H & M78.Frank Drewer is considering the purchase of a computer-aidedmanufacturing system. The after-tax cash benefits/savingsassociated with the system are as follows:CMA EXAMINATION QUESTIONSPage 83 of 117

MANAGEMENT ADVISORY SERVICESCAPITAL BUDGETINGDecreased waste$150,000Increased quality200,000Decrease in operating costs300,000Increase in on-time deliveries100,000The system will cost $4,500,000 and will last ten years. Thecompany’s cost of capital is 12 percent.218. What is the payback period for the computer-aidedmanufacturing system?a.10.00 yearsd.6.92 yearsb.15.00 yearse.6.00 yearsc.11.25 years 219. What is the NPV for the computer-aided manufacturing system?a.$4,500,000d.$4,237,500b.$(262,500)e.$3,000,000c.$(2,805,000) 220. Which of the following best describes the IRR for this project?a.between 8 and 10 percentd.between 14 and 16 percentb.between 10 and 12 percente.above 16 percent.c.between 12 and 14 percent Questions 114 through 117 are based on the following information. CIA1195 IV-38 to 41An organization has four investment proposals with the following costsand expected cash inflows:Expected Cash InflowsProjectCostEnd ofYear 1End ofYear 2End ofYear 3AUnknown$10,000$10,000$10,000B$20,000$ 5,000$10,000$15,000C$25,000$15,000$10,000$ 5,000D$30,000$20,000Unknown$20,000Additional information:Present Value ofPresent Value of anDiscount RateNumber ofPeriods$1 Due at the Endof n Periods (PVIP)Annuity of $1 perPeriod for n Periods(PVIFA)5%10.95240.95245%20.90701.85945%30.86382.723210%10.90910.909110%20.82641.735510%30.75132.486915%10.86960.869615%20.75611.625715%30.65752.2832221.If Project A has an internal rate of return (IRR) of 15%, it has a cost ofa.$8,696 c.$24,869b.$22,832d.$27,232222.If the discount rate is 10%, the net present value (NPV) of Project B isa.$4,079 c.$9,869b.$6,789d.$39,204223.The payback period of Project C isa.0 yearsc.2 years.b.1 year.d.3 years.224.If the discount rate is 5% and the discounted payback period of Project D is exactly 2years, then the year 2 cash inflow for Project D isa.$5,890c.$12,075b.$10,000d.$14,301Questions 113 through 116 are based on the following information. CIA0595 IV-41 to 44A company is evaluating three investment projects.