finance questions.

1. Assume that a company is considering purchasing a machine for $50,000 that will have a five-year useful life and a $5,000 salvage value. The machine will lower operating costs by $17,500 per year. The company’s required rate of return is 19%. The net present value of this investment is closest to:

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Multiple Choice
$3,515.
$8,000.
$19,060.
$5,610.
2.Assume that a company is considering buying a new piece of equipment for $240,000 that would have a useful life of five years and no salvage value. The equipment would generate the following estimated annual revenues and expenses:

Revenues $ 108,600
Less operating expenses:
Commissions $ 15,000
Insurance 5,000
Depreciation 48,000
Maintenance 30,000 98,000
Net operating income $ 10,600
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

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

Multiple Choice
9%.
5%.
11%.
7%.
3. Assume that a company is considering purchasing a machine for $45,750 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company’s required rate of return is 18%. The profitability index for this investment is closest to:

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Multiple Choice
0.86.
1.12.
1.16.
1.22.
4.Assume the following information for a capital budgeting proposal with a five-year time horizon:

Initial investment:
Cost of equipment (zero salvage value) $ 590,000
Annual revenues and costs:
Sales revenues $ 300,000
Variable expenses $ 130,000
Depreciation expense $ 50,000
Fixed out-of-pocket costs $ 40,000
This proposal’s simple rate of return is closest to:

Multiple Choice
22%.
14%.
15%.
27%.
5. Assume that an investment provides the following cash inflows over a three-year period:

Year 1 $ 3,000
Year 2 5,000
Year 3 7,000
Total $ 15,000
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Assuming a discount rate of 18%, what is the present value of these cash inflows?

6. Ursus, Incorporated, is considering a project that would have a eight-year life and would require a $2,640,000 investment in equipment. At the end of eight years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.):

Sales $ 2,700,000
Variable expenses 1,700,000
Contribution margin 1,000,000
Fixed expenses:
Fixed out-of-pocket cash expenses $ 400,000
Depreciation 330,000 730,000
Net operating income $ 270,000
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

All of the above items, except for depreciation, represent cash flows. The company’s required rate of return is 11%.

Required:
Compute the project’s net present value.Note: Round your intermediate calculations and final answer to the nearest whole dollar amount.
Compute the project’s internal rate of return.Note: Round your final answer to the nearest whole percent.
Compute the project’s payback period.Note: Round your answer to 2 decimal place.
Compute the project’s simple rate of return.Note: Round your final answer to the nearest whole percent.

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