(Ignore income taxes in this problem.) The Whitton Company uses a discount rate
ID: 2443993 • Letter: #
Question
(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.
(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.
(Ignore income taxes in this problem.) Overland Company has gathered the following data on a proposed investment project:
Investment in depreciable equipment $150,000
Annual cash flows $ 40,000
Life of the equipment 10 years
Salvage value -0-
Discount rate 10%
The internal rate of return on this investment is closest to:
a. 23.4%.
b. 25.4%.
c. 22.7%
d. 22.1%
Explanation / Answer
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: b. $4,460. NPV= NPV(16%,10000,10000,10000)-18000 = $4460 (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: Payback period = 75000/20000 = 3.75Yrs c. 3.75 years. (Ignore income taxes in this problem.) Overland Company has gathered the following data on a proposed investment project: Investment in depreciable equipment $150,000 Annual cash flows $ 40,000 Life of the equipment 10 years Salvage value -0- Discount rate 10% The internal rate of return on this investment is closest to: IRR = IRR(-150000,40000,40000,40000,40000,40000,40000,40000,40000,40000,40000)=23.41% a. 23.4%.
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