1.An expansion at Fidell, Inc., would increase sales revenues by $75,000 per yea
ID: 2479309 • Letter: 1
Question
1.An expansion at Fidell, Inc., would increase sales revenues by $75,000 per year and cash operating expenses by $38,000 per year. The initial investment would be for equipment that would cost $135,000 and have a 5 year life with no salvage value. The annual depreciation on the equipment would be $27,000. The simple rate of return on the investment is closest to:
A.20.0%
B.13.3%
C.7.4%
D.27.4%
2.The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr. Ormsby has won the week’s grand prize totaling $1.34 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $67,000 each.
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
If Mr. Ormsby can invest money at a 9% rate of return, what is the present value of his winnings? (Use the appropriate table to determine the discount factor(s).)
(Present value) _________x (factor value)_________=(Net present Value) _________
2.The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr. Ormsby has won the week’s grand prize totaling $1.34 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $67,000 each.
Explanation / Answer
Answer:1 C.7.4%
Simple rate of Return=(Net income/Intial investment )*100
=(10000/135000)*100
=7.4%
Net income=75000-38000-27000=10000
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