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Exam 10: Capital Investment Analysis

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Question 91

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A project is estimated to cost $273,840 and provide annual cash flows of $60,000 for seven years. Determine the internal rate of return for this project, using the following table.

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12% [($273,840 / $60,000) = 4...

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Question 92

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Net present value and the payback period are examples of discounted cash flow methods used in capital budgeting decisions.

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Question 93

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Only managers are encouraged to submit capital investment proposals because they know the processes and are able to match investments with long-term goals.

The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called:

The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation: The net present value for this investment is:

All of the following qualitative considerations may impact upon capital investment analysis except:

The process by which management allocates available investment funds among competing capital investment proposals is termed present value analysis.

Which method of evaluating capital investment proposals uses present value concepts to compute the rate of return from the net cash flows expected from capital investment proposals?

The amount of the average investment for a proposed investment of $90,000 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $21,600 for the 4 years, is:

The production department is proposing the purchase of an automatic insertion machine. They have identified 3 machines and have asked the accountant to analyze them to determine the best cash payback.

Using the following partial table of present value of $1 at compound interest, determine the present value of $30,000 to be received three years hence, with earnings at the rate of 12% a year:

Below is a table for the present value of $1 at Compound interest. Below is a table for the present value of an annuity of $1 at compound interest. Using the tables above, what is the present value of $4,000 (rounded to the nearest dollar) to be received at the end of each of the next four years, assuming an earnings rate of 12%?

Care must be taken involving capital investment decisions, since normally a long-term commitment of funds is involved and operations could be affected for many years.

Proposals A and B each cost $500,000 and have 5-year lives. Proposal A is expected to provide equal annual net cash flows of $109,000, while the net cash flows for Proposal B are as follows:

Below is a table for the present value of $1 at Compound interest. Below is a table for the present value of an annuity of $1 at compound interest. Using the tables above, what would be the internal rate of return of an investment that required an investment of $189,550, and would generate an annual cash inflow of $50,000 for the next 5 years?

The computations involved in the net present value method of analyzing capital investment proposals are more involved than those for the average rate of return method.

The net present value has been computed for Proposals P and Q. Relevant data are as follows:

The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation: The net present value for this investment is:

Below is a table for the present value of $1 at compound interest. Below is a table for the present value of an annuity of $1 at compound interest. Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%) ?

Which of the following provisions of the Internal Revenue Code can be used to reduce the amount of the income tax expense arising from capital investment projects?