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Exhibit 8B-1
to determine the appropriate discount factor(s) using tables.
Management is having di
ﬃ
culty estimating the salvage value of the aircraft. How large would the salvage
value of the aircraft have to be to make the investment in the aircraft
fi
nancially attractive?
(Round your
fi
nal answer to the nearest dollar amount.)
fi
nal answer to the nearest dollar amount.)
$86,958
$579,721
$1,541,811
$3,864,807
Minimum salvage value = Negative net present value to the offset ÷ Present value factor
= $579,721 ÷ 0.376 = $1,541,811
References
Multiple Choice
Learning Objective: 08-03
Evaluate an investment project
that has uncertain cash
ﬂ
ows.
(Ignore income taxes in this problem.) Deibel Corporation is considering a project that would require an
investment of $62,000. No other cash out
ﬂ
ows would be involved. The present value of the cash in
ﬂ
ows
would be $77,500. The pro
fi
tability index of the project is closest to:
(Round your answer to 2 decimal
(Round your answer to 2 decimal
places.)
places.)
0.25
0.20
0.75
1.25
Project A
Investment required (a)
$(62,000)
Present value of cash in
ﬂ
ows
77,500
Net present value (b)
$15,500
Project pro
fi
tability index (b) ÷ (a)
0.25
References
Multiple Choice
Learning Objective: 08-04 Rank
investment projects in order of
preference.
T
T
U
I
T
T
U
I
T
T
T
T

99.
Award: 0 out of 1.00 point
0 out of 1.00 point
100.
Award: 0 out of 1.00 point
0 out of 1.00 point
(Ignore income taxes in this problem.) The Jackson Company has invested in a machine that cost $92,000,
that has a useful life of sixteen years, and that has no salvage value at the end of its useful life. The machine
is being depreciated by the straight-line method, based on its useful life. It will have a payback period of
eight years. Given these data, the simple rate of return on the machine is closest to:
(Round your answer
to 1 decimal place.)
to 1 decimal place.)
2.7%
3.8%
6.3%
18.8%
Annual incremental cost savings*
$11,500
Annual incremental expenses:
Annual depreciation ($92,000
−
$0)/16
$5,750
5,750
Annual incremental net operating income
$5,750
*Payback period = Investment required ÷ Annual net cash in
ﬂ
ow
8 years = $92,000 ÷ Annual net cash in
ﬂ
ow
Annual net cash in
ﬂ
ow = $92,000 ÷ 8 years = $11,500 yearly cash
ﬂ
ow
Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $5,750 ÷ $92,000 = 6.3%
References
Multiple Choice
Learning Objective: 08-05
Determine the payback period for
an investment.
Learning Objective: 08-06 Compute the simple rate of return for an
investment.
(Ignore income taxes in this problem.) The Higgins Company has just purchased a piece of equipment at a
cost of $100,000. This equipment will reduce operating costs by $60,000 each year for the next six years.
This equipment replaces old equipment which was sold for $10,000 cash. The new equipment has a payback
period of:
(Round your answer to 1 decimal place.)
(Round your answer to 1 decimal place.)
1.7 years
1.5 years
6.0 years
7.5 years
Payback period = Investment required ÷ Annual net cash in
ﬂ
ow
= ($100,000
−
$10,000) ÷ $60,000 per year = 1.5 years
References
Multiple Choice
Learning Objective: 08-05
Determine the payback period for
an investment.