Use the following information to answer the next two questions: Harrison, Inc. i

Question

Use the following information to answer the next two questions: Harrison, Inc. is considering two investment opportunities. Each investment costs $7,000 a the same total future cash infows.and): vestment opportunities. Each investment costs $7,000 and will provide The schedule of estimated cash receipts for each investment follows tie satrie total future cash inflows. (assume cash is received at year-end) Year 1 Year 2 Year 3 Year 4 Total Investment I $3,000 2,500 2,000 Investment II $1,000 2,000 3,000 3,000 $9,000 $9,000 16. Which investment should Harrison choose assuming all other variables for the two investments are the same? a. Harrison should be indifferent between the two investments because they provide the same total cash inflows. b. Harrison should choose Investment I because of the time value of money c. Harrison should be indifferent between the two investments because the initial cash outflow is the same d. Harrison should choose Investment II because it generates larger cash inflows at the end of the investment's useful life. 17. Assuming an 8% minimum rate of return, what is the net present value of Investment II (round to the nearest whole dollar)? a. $7,227 b. $227 c. ($7,000) d. $926 18. KLM Company has the opportunity to purchase an asset that costs $50,000. The asset is expected to increase net income by $20,000 per year. The asset has a 5-year useful life. Depreciation expense used in computing net income amounted to $10,000 per year. Based on this information the payback period is a. 3.5 years b. 5 years c. 1.67 years. d. 2.5 years. 19. Which of the following statements concerning payback analysis is true? a. If all other variables are the same, an investment with a shorter payback period is preferable to an investment with a longer payback period. b. The payback method ianores the time value of money concept. The payback method and the unadjusted rate of return are different approaches that will c. consistently lead to the same conclusion. d. a and b. XYZ Company has an opportunity an opportunity to purchase an asset that will cost the company $60,000. The t ec add $12.000 per yeat o the unadijusted rate of a 5-year useful life and a zero salvage value, the add $12,000 per year to the company's net income. Assuming the asset has unadjusted rate of return will be a. b. C. d. 30%. 20%. 60% 50%

Explanation / Answer

16- B- Harrison should choose Investment II because of time value of money.

17- B- NPV $227

18- C- 1.67 YEAR

1.67 YEAR(50000/30000)

19- D- A&B both are Correct

20- B- 20%

Return = (12000/60000)*100 = 20%

21- D- Increased by 31.50%

22- B- COGS Grew more rapidly than selling expense

23- C- KLM's Total expnses as percentage of sales in 2014 is greater than 2014

Year Annual Benfit PVF@ 8% Benfit*PVF 0 -$7,000.00 1.000 -$7,000.000 1 $1,000.00 0.926 $925.926 2 $2,000.00 0.857 $1,714.678 3 $3,000.00 0.794 $2,381.497 4 $3,000.00 0.735 $2,205.090 Total NPV $227

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.