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# QUESTIONS 1 - 3 GO WITH THE FOLLOWING PROBLEM: Builtrite has estimated their cost of capital is 14% and they are considering the purchase of a...

1. QUESTIONS 1 - 3 GO WITH THE FOLLOWING PROBLEM:

1. Builtrite has estimated their cost of capital is 14% and they are considering the purchase of a machine with the following capital budget:Initial Investment \$62,000RATFCF Year 1. \$22,000 RATFCF Year 2. \$30,000 RATFCF Year 3 \$38,000.

1. What is the machine's NPV?

A. \$5,783

B. \$4,824

C. \$5,442

D. \$6,014

QUESTION 2

What is the Profitability Index (PI) of this machine?

1. 1.28
2. 1.06
3. 1.19
4. 1.10

QUESTION 3

What is the Internal Rate of Return of this machine?

1. 20.19%
2. 19.81%
3. 19.19%
4. 20.81%

QUESTION 4

QUESTIONS 4 - 5 GO WITH THE FOLLOWING INFORMATION:

1. Builtrite is considering purchasing a new machine that would cost \$60,000 and the machine would be depreciated (straight line) down to \$0 over its five year life. At the end of five years it is believed that the machine could be sold for \$15,000. The machine would increase EBDT by \$42,000 annually.  Builtrite's marginal tax rate is 34%.

What the RATFCF's associated with the purchase of this machine?

1. \$30,780
2. \$31,800
3. \$33,520
4. \$27,840

QUESTION 5

Builtrite is considering purchasing a new machine that would cost \$60,000 and the machine would be depreciated (straight line) down to \$0 over its five year life. At the end of five years it is believed that the machine could be sold for \$15,000. The machine would increase EBDT by \$42,000 annually.  Builtrite's marginal tax rate is 34%.

What is the TCF associated with the purchase of this machine?

1. \$9,900
2. \$7,500
3. \$0
4. \$5,100

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