1.

Lewis Manufacturing Company is planning to invest in equipment costing

$240,000. The estimated cash flows from this equipment are expected to be
as follows:
Year
1
2
3
4
5
Total

Cash Inflows
$100,000
75,000
55,000
40,000
50,000
$320,000

Assume that the cash inflows occur evenly over the year.
period for this investment is
a. 3.75 years
b. 3.25 years
c. 2.4 years
d. 1.3 years

The payback

2. Kaylin Company purchased a piece of equipment for $100,000 that had a

useful life of 5 years. The equipment had no salvage value. It saves the
company $40,000 a year and costs the company $5,000 a year to operate.
What is the accounting rate of return on the equipment?
a. 30%
b. 15%
c. 40%
d. 35%

3. Matusadona Company plans to invest $450,000 in a new factory.

With a
discount rate of 14 percent, the present value from the factory is
$483,000. To yield a 14 percent internal rate of return, the actual
investment cost cannot exceed the $450,000 estimate by more than
a. $63,000
b. $33,000
c. $16,500
d. This cannot be determined from the information given.
Figure 1
Glady, Inc., is considering
$800,000. The equipment is
$250,000. The equipment is
with no salvage value. The

4. Refer to Figure 1.
a. 5 years
b. 3.2 years
c. 4 years
d. 3.125 years
5. Refer to Figure 1.

the purchase of production equipment that costs

expected to generate annual cash inflows of
expected to have a useful life of five years
firm's cost of capital is 14 percent.

Payback for Glady's project is

If depreciation is $190,000 per year, Glady's

accounting rate of return based on the average investment would be
a. 15.0%
b. 7.5%
c. 6.25%
d. 5.5%

6. Refer to Figure 1.

Excluding the effect of income taxes, Glady's net

present value of the project is
a. $165,200
b. $450,000
c. $58,250
d. $233,550

7. Refer to Figure 1.
project is
a. 16%
b. 20%
c. 24%
d. 25%

The approximate internal rate of return of Glady's

Figure 2
JD, Inc., is considering the purchase of production equipment that costs
$400,000. The equipment is expected to generate annual cash inflows of
$125,000. The equipment is expected to have a useful life of five years
with no salvage value. The firm's cost of capital is 12 percent.

8. Refer to Figure 2.
a. 2.9 years
b. 3.2 years
c. 3.25 years
d. 4.2 years

JD's payback for the project is

9. Refer to Figure 2.

If depreciation is $90,000 per year, JD's accounting

rate of return based on the average investment would be
a. 12.0%
b. 14.5%
c. 17.0%
d. 17.5%

10. Refer to Figure 2.

a. $40,480
b. $48,625
c. $50,625
d. $54,450

JD's net present value of the project is

11. Refer to Figure 2.

JD's approximate internal rate of return of the project

is

a.
b.
c.
d.

16%
15%
13%
12%

12. Refer to Figure 2.

Based on quantitative factors, should JD accept,

reject, or wait on the project?
a. accept
b. reject
c. wait