60.Consider the following facts – do not consider the impact of income taxes:

Initial cost of equipment    $45,000

Estimated life     5 years

Salvage value     $5,000

Annual cash inflows     $15,000

Estimated cost of capital    8%

The net present value of the equipment is:

A.$14,895

B.$18,300

C.$63,300

D.$59,895

61.Consider the following facts – do not consider the impact of income taxes:

Initial cost of equipment    $45,000

Estimated life     5 years

Salvage value     $5,000

Annual cash inflows     $15,000

Estimated cost of capital    8%

The number of years it will take to re-coup the initial investment using the payback method will be:

A.2

B.5

C.4

D.3

62.If the discount rate increases:

A.There will be no impact on the net present value

B.The annual cash inflows will need to increase in order to retain the same net present value

C.The present value of future cash flows will increase

D.The internal rate of return requirement will increase

63.Consider the following information:

Initial cost of equipment    $108,000

Sales tax and delivery costs    $7,000

Estimated life      7 years

Salvage value      $11,000

Annual cash inflows     $31,000

Estimated cost of capital    13%

         Without considering the effect of income taxes, the net present value of the equipment is:

A.$26,788

B.$22,082

C.$33,757

D.$29,082

64.Company X invested in a piece of equipment with an initial cost of $80,000.  The equipment is expected to provide net cash flows of $18,000 per year with an estimated life of 10 years and no salvage value.  The company’s cost of capital is 14%.  The payback period using the modified payback method and without considering the impact of taxes is:

A.4.4 years

B.7.4 years

C.8 years

D.9 years

65.Using the following data: (and ignoring the impact of income taxes)

Initial cost of equipment  $1,000,000

Annual cash inflows   $191,720

Salvage value    $0

Estimated life    10 years

The internal rate of return on this investment is closest to:

A.12%

B.14%

C.16%

D.18%

66.A company has an opportunity cost of capital of 9.5%. Which of the following is the most acceptable investment for this company?

A.An investment with an IRR of 9.0%

B.An investment with an NPV of $5

C.An investment with an NPV of 0

D.An investment with an NPV of ($5)

67.On January 1, 2013, Nickerman, Inc. plans to purchase a machine for $58,000 that has an estimated salvage value of $12,000, and an estimated life of 4 years. The machine is expected to generate the following cash flows and income over the next 4 years:

 2013201420152016

Net income$10,000$12,500$11,000$8,000

Operating cash flows  21,500  24,000  22,500 19,500

The opportunity cost of capital is 12%. How much is the NPV?   

A.$8,303

B.$15,935

C.($26,188)

D.($18,556)

68.A machine with a cost of $104,000 and a residual value of $12,000 has an estimated useful life of 4 years. Operating cash flows are expected to be $28,000 during year 1 and $33,000 in each of years 2, 3, and 4. The opportunity cost of capital is 8%. How much is ARR?

A.54.7%

B.8.4%

C.15.1%

D.38.0%

69.On January 1, 2013, Nickerman, Inc. plans to purchase a machine for $46,000 with an estimated life of 4 years. The machine is expected to generate $14,500 of annual net operating cash flows and $3,000 of income over each of the next 4 years. The opportunity cost of capital is 12%. How much is the IRR?

A.3.17%

B.10.0%

C.15.3%

D.7.0%