Chapter 11 Homework

1.

Suppose Daisy Mae's Sweets is considering investing in warehouse-management software that costs $450,000, has $55,000 residual value, and should lead to cost savings of $125,000 per year for its ve-year life. In calculating the ARR, which of the following gures should be used as the equation's denominator (average amount invested in the asset)? O A. $197,500 0 B. $252,500 0 C. $225,000 0 D. $505,000 Roberts Hardware is adding a new product line that will require an investment of $1,512,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $310,000 the first year, $300,000 the second year, and $230,000 each year thereafter for eight years. Compute the payback period. Round to one decimal place. . . . . . The payback in years isRoberts Hardware is adding a new product line that will require an investment of $1,454,000 Managers estimate that this investment will have a 10-year life and generate net cash inows of $300,000 the rst year, $290,000 the second year, and $230,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places. Select the formula, then enter the amounts to calculate the ARR (accounting rate of return) for the new product line. (Round ARR to the nearest hundredth percent [two decimal places], X.XX%.) 4- = ARR + = % Your rich aunt has promised to give you $2,000 per year at the end of each of the next four years to help you pay for college. Using a discount rate of 12%, the present value of the gift can be stated as . . . . . O A. PV = $2,000 (PV factor, i = 4%, n = 12). O B. PV = $2,000 (Annuity PV factor, i = 12%, n = 4). O C. PV = $2,000 x 12% x 4. O D. PV = $2,000 (Annuity FV factor, i = 12%, n = 4)