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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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