31) Assume straight-line amortization in all computations, and ignore income taxes.

The internal rate of return in case Y is approximately

A) 10 percent.

B) 12 percent.

C) 14 percent.

D) 16 percent.

Below are two potential investment alternatives:

Case X

Case Y

Initial capital investment

$120,000

$180,000

Estimated useful life

         3 yrs.

          3 yrs.

Estimated terminal salvage value

          -0-

          -0-

Estimated annual savings in cash operating costs

$ 50,000

$ 80,000

Minimum desired rate of return

10 percent

   12 percent

Assume straight-line amortization in all computations, and ignore income taxes.

32) The payback period in case X is

A) 3.0 years.

B) 0.4 years.

C) 2.5 years.

D) 2.4 years.

33) The payback period for case Y is

A) 0.44 years.

B) 3.00 years.

C) 2.25 years.

D) 2.40 years.

34) The accounting rate of return based on INITIAL investment in case X is

A) 41.67 percent.

B) 8.33 percent.

C) 16.67 percent.

D) 33.33 percent.

35) The accounting rate of return based on INITIAL investment in case Y is

A) 11.11 percent.

B) 44.44 percent.

C) 33.33 percent.

D) 22.22 percent.

Below are two potential investment alternatives:

Case A

Case B

Initial capital investment

$90,000

$150,000

Estimated useful life

         3 yrs.

          3 yrs.

Estimated terminal salvage value

          -0-

          -0-

Estimated annual savings in cash operating costs

$36,000

$ 58,000

Minimum desired rate of return

10 percent

   12 percent

Assume straight-line amortization in all computations, and ignore income taxes.

36) The payback period in case A is

A) 0.4 years.

B) 2.5 years.

C) 3.3 years.

D) 3.0 years.

37) The payback period in case B is

A) 3.63 years.

B) 3.00 years.

C) 3.87 years.

D) 2.59 years.

38) The accounting rate of return based on INITIAL investment in case A is

A) 6.67 percent.

B) 5.56 percent.

C) 2.49 percent.

D) 40.00 percent.

39) The accounting rate of return based on INITIAL investment in case B is

A) 38.67 percent.

B) 2.59 percent.

C) 5.33 percent.

D) 2.40 percent.

40) In capital budgeting, the relevant tax rate to consider is the

A) prior year tax rate.

B) average rate expected for the company.

C) marginal rate expected for the company.

D) highest rate that applies to U.S. corporations.



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