Question 1

Figure 13-2. A company is considering two projects.

	Project A	Project B
Initial investment	$150,000	$150,000
Cash inflow Year 1	$50,000	$40,000
Cash inflow Year 2	$50,000	$40,000
Cash inflow Year 3	$50,000	$40,000
Cash inflow Year 4	$50,000	$60,000
Cash inflow Year 5	$50,000	$80,000

Refer to Figure 13-2. What is the payback period for Project A?

Answer

		2 year
		2.5 years
		3 years
		3.5 years
		5 years

Question 2

Figure 13-2. A company is considering two projects.

	Project A	Project B
Initial investment	$150,000	$150,000
Cash inflow Year 1	$50,000	$40,000
Cash inflow Year 2	$50,000	$40,000
Cash inflow Year 3	$50,000	$40,000
Cash inflow Year 4	$50,000	$60,000
Cash inflow Year 5	$50,000	$80,000

Refer to Figure 13-2. What is the payback period for Project B?

Answer

		2 years
		2.5 years
		3 years
		3.5 years
		5 years

Question 3

Figure 13-3. Darth Company is considering the purchase of new heavy construction equipment that will cost $2,000,000 and have a life of 8 years with no expected salvage value. The expected cash flows associated with the project are as follows:

Year	Cash Revenues	Cash Expenses & Depreciation
1	$2,400,000	$1,900,000
2	$2,400,000	$1,900,000
3	$2,400,000	$1,900,000
4	$2,400,000	$1,900,000
5	$2,400,000	$1,900,000
6	$2,400,000	$1,900,000
7	$2,400,000	$1,900,000
8	$2,400,000	$1,900,000

Refer to Figure 13-3. What is the average annual income for this project?

Answer

		$2,400,000
		$1,900,000
		$500,000
		$62,500
		$300,000

Question 4

Figure 13-3. Darth Company is considering the purchase of new heavy construction equipment that will cost $2,000,000 and have a life of 8 years with no expected salvage value. The expected cash flows associated with the project are as follows:

Year	Cash Revenues	Cash Expenses & Depreciation
1	$2,400,000	$1,900,000
2	$2,400,000	$1,900,000
3	$2,400,000	$1,900,000
4	$2,400,000	$1,900,000
5	$2,400,000	$1,900,000
6	$2,400,000	$1,900,000
7	$2,400,000	$1,900,000
8	$2,400,000	$1,900,000

Refer to Figure 13-3. What is the accounting rate of return for the project?

Answer

		25%
		3.125%
		400%
		83.33%
		120%

Question 5

Figure 13-6. Present value of $1

Periods	4%	6%	8%	10%	12%	14%
1	0.962	0.943	0.926	0.909	0.893	0.877
2	0.925	0.890	0.857	0.826	0.797	0.769
3	0.889	0.840	0.794	0.751	0.712	0.675
4	0.855	0.792	0.735	0.683	0.636	0.592
5	0.822	0.747	0.681	0.621	0.567	0.519
6	0.790	0.705	0.630	0.564	0.507	0.456
7	0.760	0.665	0.583	0.513	0.452	0.400
8	0.731	0.627	0.540	0.467	0.404	0.351
9	0.703	0.592	0.500	0.424	0.361	0.308
10	0.676	0.558	0.463	0.386	0.322	0.270

Present value of an Annuity of $1

Periods	4%	6%	8%	10%	12%	14%
1	0.962	0.943	0.926	0.909	0.893	0.877
2	1.886	1.833	1.783	1.736	1.690	1.647
3	2.775	2.673	2.577	2.487	2.402	2.322
4	3.630	3.465	3.312	3.170	3.037	2.914
5	4.452	4.212	3.993	3.791	3.605	3.433
6	5.242	4.917	4.623	4.355	4.111	3.889
7	6.002	5.582	5.206	4.868	4.564	4.288
8	6.733	6.210	5.747	5.335	4.968	4.639
9	7.435	6.802	6.247	5.759	5.328	4.946
10	8.111	7.360	6.710	6.145	5.650	5.216

Refer to Figure 13-6. Morgan Clinical Practice is considering an investment in new imaging equipment that will cost $400,000. The equipment is expected to yield cash inflows of $80,000 per year for a six year period. Morgan set a required rate of return at 10%. What is the net present value of the investment? (Note: there may be rounding error depending on the table you use to compute your answer. Choose the answer closest to the one you calculate.)

Answer

		$51,600
		($51,600)
		$348,400
		($348,600)
		$451,600

Question 6

Elizabeth Myers invested in a project that required an initial amount of $1,560, and returned one cash inflow of $12,000 at the end of the 18th year. A partial table of the present value of an annuity of $1 in arrears is as follows:

Year	2%	4%	6%	8%	10%	12%	14%	16%
18	0.700	0.494	0.350	0.250	0.180	0.130	0.095	0.069

What is the internal rate of return for this investment?

Answer

		8%
		10%
		12%
		14%
		16%