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

PV of $1

(3 years)

PV of an Annuity of $1

(3 years)   

8 percent

0.7938

2.5771

10 percent

0.7513

2.4869

12 percent

0.7118

2.4018

14 percent

0.6750

2.3216

16 percent

0.6407

2.2459

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

The net present value in case X is

A) $4,345.

B) $82,435.

C) $50,000.

D) $90.

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

The net present value in case Y is

A) $80,000.

B) $12,144.

C) $(328).

D) $123,056.

Below are two potential investment alternatives:

Case X

Case Y

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

PV of $1

(3 years)

PV of an Annuity of $1

(3 years)   

8 percent

0.7938

2.5771

10 percent

0.7513

2.4869

12 percent

0.7118

2.4018

14 percent

0.6750

2.3216

16 percent

0.6407

2.2459

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

The net present value in case A is

A) $54,000.

B) $(  472).

C) $ 6,000.

D) $(6,000).

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

The net present value in case B is

A) $8,000.

B) $(8,000).

C) $(10,696).

D) $(8,716).

Alpha Company has the following information:

Number of Years

        5      

       10        

      15      

Amount of annual cash inflow

$6,000

(c)

$ 3,050

Required initial investment

(a)

$75,000

$24,000

Internal rate of return

  8 percent

10 percent

(e)

Minimum desired rate of return

10 percent

(d)

8 Percent

Net present value

(b)

$ 3,900

(f)

15) What is (a)?

A) $23,958

B) $22,746

C) $ 8,811

D) $ 9,662

16) What is (b)?

A) $ -0-

B) $(1,212)

C) $16,359

D) $14,296

17) What is (c)?

A) $28,950

B) $71,100

C) $12,205

D) $ 3,900

18) What is (d)?

A) Less than 6 percent

B) Between 6 and 8 percent

C) Between 8 and 10 percent

D) Between 10 and 12 percent

19) What is (e)?

A) Below 6 percent

B) Between 6 and 8 percent

C) Between 8 and 10 percent

D) Between 10 and 12 percent

20) What is (f)?

A) $2,105

B) $26,105

C) $3,050

D) $(4,510)



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