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ACC 202 Principles of Management Accounting Fall 2008 Sample Quiz for CH 13 (not graded) 1.

Amster Corporation has not yet decided on the required rate of return to use in its capital budgeting. This lack of information will prevent Amster from calculating a project's:

a. b. c. d. 2. (Ignore income taxes in this problem) The management of Penfold Corporation is considering the purchase of a machine that would cost $440,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimum pretax return of 16% on all investment projects. The net present value of the proposed project is closest to: Note: The present value of $1 invested at 16% for 7 periods is 4.039. a. $28,022 b. $96,949 c. $79,196 d. $274,000 3. (Ignore income taxes in this problem.) Heap Company is considering an investment in a project that will have a two year life. The project will provide a 10% internal rate of return, and is expected to have a $40,000 cash inflow the first year and a $50,000 cash inflow in the second year. What investment is required in the project? Note: the present value of $1 for 1 period at 10% is .909 and the present value of $1 received in 2 periods is .826. a. $74,340 b. $77,660 c. $81,810 d. $90,000

4. (Ignore income taxes in this problem.) Congener Beverage Corporation is considering an investment in a capital budgeting project that has an internal rate of return of 20%. The only cash outflow for this project is the initial investment. The project is estimated to have an 8 year life and no salvage value. Cash inflows from this project are expected to be $100,000 per year in each of the 8 years. Congener's discount rate is 16%. What is the net present value of this project?

Note: the present value of an annuity of $1 for 8 periods at 16% is 4.344. The present value of an annuity of $1 for 8 periods at 20% is 3.837. a. $5,215 b. $15,464 c. $50,700 d. $55,831 5. (Ignore income taxes in this problem.) Para Corporation is reviewing the following data relating to an energy saving investment proposal:

What annual cash savings would be needed in order to satisfy the company's 12% required rate of return (rounded to the nearest one hundred dollars)?

Note: the present value of an annuity of $1 for 5 periods at 12% is 3.605. The present value of $1 received at the end of the 5th periods at 12% is .567. a. $10,600 b. $11,100 c. $12,300 d. $13,900

SOLUTIONS 1. d. 2. a. 3. b. 4. c 5. c