1. The capital budgeting method that divides a project's annual incremental net operating income by the initial investment is the: 
A. internal rate of return method.
B. the simple rate of return method.
C. the payback method.
D. the net present value method.

2. (Ignore income taxes in this problem.) Sue Falls is the president of Sports, Inc. She is considering buying a new machine that would cost $14,125. Sue has determined that the new machine promises an internal rate of return of 12%, but Sue has misplaced the paper which tells the annual cost savings promised by the new machine. She does remember that the machine has a projected life of 10 years. Based on these data, the annual cost savings are: 
A. It is impossible to determine from the data given.
B. $1,412.50
C. $2,500.00
D. $1,695.00

3. (Ignore income taxes in this problem.) Joe Flubup is the president of Flubup, Inc. He is considering buying a new machine that would cost $25,470. Joe has determined that the new machine promises an internal rate of return of 14%, but Joe has misplaced the paper which tells the annual cost savings promised by the new machine. He does remember that the machine has a projected life of 12 years. Based on these data, the annual cost savings are: 
A. It is impossible to determine from the given data.
B. $2,122.50
C. $4,500.00
D. $4,650.00

4. (Ignore income taxes in this problem.) Cuarto Corporation just invested in a project that has an internal rate of return of 24%. This project is expected to generate $44,000 of net cash inflows each year of its 6 year life. The project has no salvage value. What was the initial investment required for this project? 
A. $63,360
B. $72,600
C. $132,880
D. $160,000


5. (Ignore income taxes in this problem.) Highpoint, Inc., is considering investing in automated equipment with a ten-year useful life. Managers at Highpoint have estimated the cash flows associated with the tangible costs and benefits of automation, but have been unable to estimate the cash flows associated with the intangible benefits. Using the company's 10% discount rate, the net present value of the cash flows associated with just the tangible costs and benefits is a negative $184,350. How large would the annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment? 
A. $18,435
B. $30,000
C. $35,000
D. $37,236

6. (Ignore income taxes in this problem.) Given the following data: 



Based on the data given, the annual cost savings would be: 
A. $1,630.00
B. $2,200.00
C. $2,123.89
D. $2,553.89

7. (Ignore income taxes in this problem.) Parks Company is considering an investment proposal in which a working capital investment of $10,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is: 
A. $1,290
B. $(1,290)
C. $2,000
D. $4,350


8. (Ignore income taxes in this problem.) Boston Company is contemplating the purchase of a new machine on which the following information has been gathered: 



The company's discount rate is 16%, and the machine will be depreciated using the straight-line method. Given these data, the machine has a net present value of: 
A. -$26,100
B. -$23,900
C. $0
D. +$26,100

9. (Ignore income taxes in this problem.) The Whitton Company uses a discount rate of 16%. The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows of $10,000 per year for each of the next three years. The machine would have no salvage value. The net present value of this machine to the nearest whole dollar is: 
A. $22,460
B. $4,460
C. $(9,980)
D. $12,000

10. (Ignore income taxes in this problem.) The following data pertain to an investment: 



The net present value of the proposed investment is: 
A. $3,355
B. $(3,430)
C. $0
D. $621


11. (Ignore income taxes in this problem.) Kumanu, Inc. is considering investing in new FMS equipment for its factory. This equipment will cost $80,000, is expected to last 6 years, and is expected to have a $10,000 salvage value at the end of 6 years. The new equipment is expected to generate cost savings of $20,000 per year in each of the 6 years. Kumanu's discount rate is 16%. What is the net present value of this equipment? 
A. $(2,200)
B. $3,700
C. $20,500
D. $(34,950)

12. (Ignore income taxes in this problem.) Stratford Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $90,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is $170,000? 
A. $221,950
B. $170,000
C. $268,120
D. $438,120

13. (Ignore income taxes in this problem.) Arthur operates a part-time auto repair service. He estimates that a new diagnostic computer system will result in increased cash inflows of $2,100 in Year 1, $3,200 in Year 2, and $4,000 in Year 3. If Arthur's discount rate is 10%, then the most he would be willing to pay for the new computer system would be: 
A. $6,652
B. $6,984
C. $7,747
D. $7,556


14. (Ignore income taxes in this problem.) Banderas Corporation is considering the purchase of a machine that would cost $330,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $79,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $59,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to: 
A. $12,871
B. $63,352
C. -$15,648
D. $35,692

15. (Ignore income taxes in this problem) The management of Rousseau Corporation is considering the purchase of a machine that would cost $340,000, would last for 8 years, and would have no salvage value. The machine would reduce labor and other costs by $67,000 per year. The company requires a minimum pretax return of 15% on all investment projects. The net present value of the proposed project is closest to: 
A. $196,000
B. -$120,437
C. -$39,371
D. $64,073

16. (Ignore income taxes in this problem.) Dokes, Inc. is considering the purchase of a machine that would cost $440,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $62,000. The machine would reduce labor and other costs by $81,000 per year. Additional working capital of $8,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 13% on all investment projects. The net present value of the proposed project is closest to: 
A. -$24,308
B. -$8,998
C. -$27,030
D. -$3,662


17. (Ignore income taxes in this problem.) The following information concerns a proposed investment: 



The internal rate of return is (do not interpolate): 
A. 14%
B. 12%
C. 10%
D. 5%

18. (Ignore income taxes in this problem) The management of Boie Corporation is considering the purchase of a machine that would cost $330,980 and would have a useful life of 6 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $76,000 per year. The internal rate of return on the investment in the new machine is closest to: 
A. 11%
B. 10%
C. 12%
D. 7%

19. (Ignore income taxes in this problem.) Pare Long-Haul, Inc. is considering the purchase of a tractor-trailer that would cost $104,520, would have a useful life of 6 years, and would have no salvage value. The tractor-trailer would be used in the company's hauling business, resulting in additional net cash inflows of $24,000 per year. The internal rate of return on the investment in the tractor-trailer is closest to: 
A. 10%
B. 8%
C. 13%
D. 11%


20. (Ignore income taxes in this problem.) Valdivieso Roofing is considering the purchase of a crane that would cost $137,885, would have a useful life of 9 years, and would have no salvage value. The use of the crane would result in labor savings of $23,000 per year. The internal rate of return on the investment in the crane is closest to: 
A. 6%
B. 8%
C. 11%
D. 9%

21. (Ignore income taxes in this problem) Digrande Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 6 years. The company uses a discount rate of 12% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is -$250,113. Management is having difficulty estimating the salvage value of the aircraft. To the nearest whole dollar how large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive? 
A. $30,014
B. $2,084,275
C. $250,113
D. $493,320

22. (Ignore income taxes in this problem) The management of Nagata Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 6 years. The company uses a discount rate of 13% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is -$326,237. To the nearest whole dollar how large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? 
A. $326,237
B. $54,373
C. $81,600
D. $42,411


23. (Ignore income taxes in this problem) The management of Malit Corporation is investigating an investment in equipment that would have a useful life of 9 years. The company uses a discount rate of 17% in its capital budgeting. The net present value of the investment, excluding the annual cash inflow, is -$367,742. To the nearest whole dollar how large would the annual cash inflow have to be to make the investment in the equipment financially attractive? 
A. $62,516
B. $82,620
C. $40,860
D. $367,742

24. (Ignore income taxes in this problem.) Picado, Inc. is investigating an investment in equipment that would have a useful life of 8 years. The company uses a discount rate of 9% in its capital budgeting. The net present value of the investment, excluding the salvage value, is -$389,000. To the nearest whole dollar how large would the salvage value of the equipment have to be to make the investment in the equipment financially attractive? 
A. $774,900
B. $35,010
C. $389,000
D. $4,322,222

25. Fonics Corporation is considering the following three competing investment proposals: 



Using the project profitability index, how would the above investments be ranked (highest to lowest)? 
A. Aye, Bee, Cee
B. Aye, Cee, Bee
C. Cee, Bee, Aye
D. Bee, Cee, Aye


26. A project requires an initial investment of $70,000 and has a project profitability index of 0.141. The present value of the future cash inflows from this investment is: 
A. $61,350
B. $68,920
C. $75,210
D. $79,870

27. Information on four investment proposals is given below: 



Rank the proposals in terms of preference according to the project profitability index: 
A. 3, 4, 1, 2
B. 1, 2, 3, 4
C. 1, 3, 2, 4
D. 2, 1, 4, 3

28. (Ignore income taxes in this problem.) The management of Eversman Corporation is considering the following three investment projects: 



Rank the projects according to the profitability index, from most profitable to least profitable. 
A. V,U,W
B. U,W,V
C. W,V,U
D. V,W,U


29. (Ignore income taxes in this problem.) Glassett Corporation is considering a project that would require an investment of $62,000. No other cash outflows would be involved. The present value of the cash inflows would be $70,060. The profitability index of the project is closest to: 
A. 0.13
B. 1.13
C. 0.87
D. 0.12

30. (Ignore income taxes in this problem.) Tanna Corporation is considering three investment projects: O, P, and Q. Project O would require an investment of $38,000, Project P of $49,000, and Project Q of $91,000. No other cash outflows would be involved. The present value of the cash inflows would be $42,180 for Project O, $53,900 for Project P, and $91,910 for Project Q. Rank the projects according to the profitability index, from most profitable to least profitable. 
A. P,O,Q
B. O,Q,P
C. Q,O,P
D. O,P,Q

31. (Ignore income taxes in this problem.) The management of Crail Corporation is considering a project that would require an initial investment of $51,000. No other cash outflows would be required. The present value of the cash inflows would be $60,180. The profitability index of the project is closest to: 
A. 0.18
B. 0.82
C. 1.18
D. 0.15


32. (Ignore income taxes in this problem.) Jarvey Company is studying a project that would have a ten-year life and would require a $450,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project: 



The company's required rate of return is 12%. What is the payback period for this project? 
A. 3 years
B. 2 years
C. 4.28 years
D. 9 years

33. (Ignore income taxes in this problem.) A company with $800,000 in operating assets is considering the purchase of a machine that costs $75,000 and which is expected to reduce operating costs by $20,000 each year. The payback period for this machine in years is closest to: 
A. 0.27 years
B. 10.7 years
C. 3.75 years
D. 40 years


34. (Ignore income taxes in this problem.) The Keego Company is planning a $200,000 equipment investment which has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment. 



Assuming that the cash inflows occur evenly over the year, the payback period for the investment is: 
A. 0.75 years
B. 1.67 years
C. 4.91 years
D. 2.50 years

35. (Ignore income taxes in this problem.) Burwinkel Corporation is considering a project that would require an investment of $252,000 and would last for 7 years. The incremental annual revenues and expenses generated by the project during those 7 years would be as follows: 



The scrap value of the project's assets at the end of the project would be $28,000. The payback period of the project is closest to: 
A. 1.1 years
B. 1.3 years
C. 1.4 years
D. 1.5 years


36. (Ignore income taxes in this problem.) The management of Morrissette Corporation is considering a project that would require an investment of $284,000 and would last for 7 years. The annual net operating income from the project would be $135,000, which includes depreciation of $37,000. The scrap value of the project's assets at the end of the project would be $25,000. The payback period of the project is closest to: 
A. 2.1 years
B. 1.5 years
C. 1.9 years
D. 1.7 years

37. (Ignore income taxes in this problem.) Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $450,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $20,000 per year to operate and maintain, but would save $100,000 per year in labor and other costs. The old machine can be sold now for scrap for $50,000. The simple rate of return on the new machine is closest to: 
A. 8.75%
B. 20.00%
C. 7.78%
D. 22.22%

38. (Ignore income taxes in this problem.) Tighe Corporation is contemplating purchasing equipment that would increase sales revenues by $420,000 per year and cash operating expenses by $231,000 per year. The equipment would cost $747,000 and have a 9 year life with no salvage value. The annual depreciation would be $83,000. The simple rate of return on the investment is closest to: 
A. 25.3%
B. 14.2%
C. 11.1%
D. 25.2%


39. (Ignore income taxes in this problem.) The management of Wiersema Corporation is investigating purchasing equipment that would increase sales revenues by $257,000 per year and cash operating expenses by $103,000 per year. The equipment would cost $430,000 and have a 5 year life with no salvage value. The simple rate of return on the investment is closest to: 
A. 15.8%
B. 20.0%
C. 26.5%
D. 35.8%

40. (Ignore income taxes in this problem.) An expansion at Huebschman, Inc., would increase sales revenues by $76,000 per year and cash operating expenses by $33,000 per year. The initial investment would be for equipment that would cost $196,000 and have a 7 year life with no salvage value. The annual depreciation on the equipment would be $28,000. The simple rate of return on the investment is closest to: 
A. 7.7%
B. 14.3%
C. 21.9%
D. 19.7%

41. (Ignore income taxes in this problem.) Finlay Corporation is investigating automating a process by purchasing a machine for $225,000 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $54,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $24,000. The annual depreciation on the new machine would be $25,000. The simple rate of return on the investment is closest to: 
A. 24.0%
B. 12.9%
C. 11.1%
D. 14.5%


42. (Ignore income taxes in this problem.) The management of Kissinger Corporation is investigating automating a process. Old equipment, with a current salvage value of $23,000, would be replaced by a new machine. The new machine would be purchased for $330,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $108,000 per year in cash operating costs. The simple rate of return on the investment is closest to: 
A. 17.3%
B. 16.7%
C. 16.1%
D. 32.7%

(Ignore income taxes in this problem.) Jones and Company has just purchased a new piece of equipment, the cost characteristics of which are given below:



The company uses a required rate of return of 10% and depreciates equipment using the straight-line method.

43. The payback period for the investment is: 
A. 5 years
B. 15 years
C. 2 years
D. 7.143 years

44. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is: 
A. 20.0%
B. 13.3%
C. 18.0%
D. 10.0%


45. The net present value of the investment is: 
A. $15,636
B. $24,000
C. $45,636
D. $60,000

46. The internal rate of return of the investment is closest to: 
A. 16%
B. 18%
C. 20%
D. 22%

(Ignore income taxes in this problem.) Isomer Industrial Training Corporation is considering the purchase of new presentation equipment at a cost of $150,000. The equipment has an estimated useful life of 10 years with an expected salvage value of zero. The equipment is expected to generate net cash inflows of $35,000 per year in each of the 10 years. Isomer's discount rate is 16%. Isomer uses the straight-line method of depreciation for its assets.

47. What is the net present value of the presentation equipment? 
A. $950
B. $19,155
C. $(36,500)
D. $(53,340)

48. Between what two percents does the internal rate of return of the presentation equipment fall? 
A. 5% and 6%
B. 8% and 10%
C. 14% and 16%
D. 18% and 20%


49. What is the payback period of the presentation equipment? 
A. 2.3 years
B. 3.0 years
C. 4.3 years
D. 5.8 years

50. What is the simple rate of return of the presentation equipment? 
A. 13.3%
B. 22.7%
C. 23.3%