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ABC Company is considering the purchase of a new garbage truck ON 1/1/20. The truck will...

ABC Company is considering the purchase of a new garbage truck ON 1/1/20. The truck will cost $40,000 and have useful life of 5 years with a salvage value of $0. The new truck is much more efficient than the old delivery truck and should increase the company’s annual cash operating income by $12,000. Straight-line depreciation will be used.  The income tax rate is 25% and ABC Company’s hurdle rate is 10%. PRESENT VALUE TABLES ON THE EXAM’S LAST PAGE.

  1. Payback is equal to

  1. 3.436 years
  2. 3.536 years
  3. 3.636 years
  4. 3.736 years

  1. The Accounting Rate of Return (AROR) is equal to

  1. 10.5%
  2. 9.5%
  3. 8.5%
  4. 7.5%

    6. The Net Present Value (NPV) is equal to

  1. $1,701
  2. $1,801
  3. $1,901
  4. $2,001  
  1. The Profitability Index (PI) is equal to

  1. .94
  2. 1.04
  3. 1.14
  4. 1.24

  1. The Internal Rate of Return (IRR) is equal to

  1. 9.66%
  2. 10.66%
  3. 11.66%
  4. 12.66%  

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Expert Solution

ekkarill92 answered 1 year ago
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