25. George Williams buys a machine for his business. The machine costs $150,000.

Question

25.   George Williams buys a machine for his business. The machine costs $150,000. George estimates that the machinecan produce $40,000 cash inflow per year for the next fiveyears. George’s cost of capital is 10 percent. What is the payback for this investment?

(a)               1.25 years.

(b)              3.75 years.

(c)               5 years.

(d)              9.43 years.

26.    Cheryl Pack purchased a computer network for herclassroom. The computer network cost $100,000. Sheestimates that she can charge $500 for one session in theclassroom. Cheryl knows that enrollment will increase overtime. She estimates 50 students the first year, 75 studentsthe second year, 100 students the third year, and 150 students thefourth year. If her cost of capital is 12 percent, what isthe approximate profitability index?

(a)               $1.05.

(b)              $1.19.

(c)               $1.35.

(d)              $1.88.

27.     The cost of not taking the cash discounton trade credit of 3/10, net 30 is equal to:

(a)               44.54%.

(b)              43.20%.

(c)               55.67%.

(d)              None of the above.

Explanation / Answer

25 b 3.75 Hint : 150,000 / 40000 26 c 1.35 Hint : PI = PV of benefits / initial Cost 27 d None of the above

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