Question

In: Accounting

1a.A decrease in the discount rate: a.will decrease the present value of future cash flows b.will...

1a.A decrease in the discount rate:

a.will decrease the present value of future cash flows

b.will have no effect on net present value

c.is one method of compensating for reduced risk

d.will increase the present value of future cash flows

1b.The time it will take to earn back, in the form of cash inflows from operations, the initial dollars invested in a project is known as the:

a.accelerated recovery period

b.internal return period

c.payback period

d.accounting return period

1c.A company has gathered the following data on a proposed investment project:

Investment required in equipment      $30,000
Annual cash inflows                                          $6,000
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.

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

a.20.0%

b.10.0%

c.18.0%

d.13.3%

1d. Management is considering the purchase of a machine that would cost $360,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $78,000 per year. The company requires a minimum pretax return of 11% on all investment projects.

The net present value of the proposed project is closest to:

Present Value of $1              Present Value of Annuity
Periods    11%                       Periods      11%
    1       0.901                            1         0.901
2       0.812                            2        1.713
    3       0.731                            3         2.444
    4       0.659                            4         3.102
    5       0.593                            5         3.696
    6       0.535                            6         4.231
    7      0.482                             7         4.712
    8      0.434                             8          5.146
    9    0.391                             9          5.537
   10    0.352                            10          5.889

a.$15,646

b.$7,536

c.$89,588

d.$186,000

1e.Assume you can invest money at a 14% rate of return. How much money must be invested now in order to be able to withdraw $5,000 from this investment at the end of each year for 8 years, the first withdrawal occurring one year from now?

Present Value of $1              Present Value of Annuity
Periods    14%                       Periods      14%
    1       0.877                            1         0.877
2       0.769                            2        1.647
    3       0.675                            3         2.322
    4       0.592                            4         2.914
    5       0.519                            5         3.433
    6       0.456                            6         3.889
    7      0.400                             7         4.288
    8      0.351                             8          4.639
    9    0.308                             9          4.946
   10    0.270                            10          5.216

a.$23,195

b.$24,840

c.$21,440

d.$1,755

1f.Assuming a 14% interest rate, which of the following is closest to the total present value of the following payments?

Year 3 $12,000
Year 5 $10,000

Present Value of $1              Present Value of Annuity
Periods    14%                       Periods      14%
    1       0.877                            1         0.877
2       0.769                            2        1.647
    3       0.675                            3         2.322
    4       0.592                            4         2.914
    5       0.519                            5         3.433
    6       0.456                            6         3.889
    7      0.400                             7         4.288
    8      0.351                             8          4.639
    9    0.308                             9          4.946
   10    0.270                            10          5.216

a.$12,978

b.$13,290

c.$8,100

d.$32,054

Expert Solution

ekkarill92 answered 1 year ago

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