Question

1A)) A company wants to have $20,000 at the end of a ten-year period by investing a single sum now. How much needs to be invested in order to have the desired sum in ten years, if the money can be invested at 12%? (Ignore income taxes.)

Multiple Choice

• $7,720 A

• $3,539.82 B

• $3,254.68 C

• $6,440 D

1B)) The management of L Corporation is considering a project that would require an investment of $285,000 and would last for 6 years. The annual net operating income from the project would be $115,000, which includes depreciation of $16,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to (Ignore income taxes.):

Multiple Choice

• 2.2 years A

• 2.3 years B

• 1.9 years C

• 2.5 years D

1C)) J Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):

Investment required in equipment	$	39,000
Annual cash inflows	$	9,600
Salvage value of equipment	$	0
Life of the investment		15	years
Required rate of return		10	%

The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:

Multiple Choice

• 26.1% A

• 17.9% B

• 12.6% C

• 31.2% D

Answer 1