Exam 12: Performance Measurement in Decentralized Organizations

Neighbors Corporation is considering a project that would require an investment of $279,000 and would last for 8 years.The incremental annual revenues and expenses generated by the project during those 8 years would be as follows: The scrap value of the project's assets at the end of the project would be $15,000.The cash inflows occur evenly throughout the year.The payback period of the project is closest to:

The best capital budgeting method for ranking investment projects of different dollar amounts is the:

The management of Edelmann Corporation is considering the following three investment projects: Rank the projects according to the profitability index,from most profitable to least profitable.

In calculating the payback period where new equipment is replacing old equipment,any salvage value to be received on disposal of the old equipment should be added to the cost of the new equipment.

Bullinger Corporation has provided the following data concerning an investment project that it is considering: The net present value of the project is closest to:

Wombles Corporation is contemplating purchasing equipment that would increase sales revenues by $478,000 per year and cash operating expenses by $249,000 per year.The equipment would cost $738,000 and have a 9 year life with no salvage value.The annual depreciation would be $82,000.The simple rate of return on the investment is closest to:

The management of Helberg Corporation is considering a project that would require an investment of $203,000 and would last for 6 years.The annual net operating income from the project would be $103,000,which includes depreciation of $30,000.The scrap value of the project's assets at the end of the project would be $23,000.The cash inflows occur evenly throughout the year.The payback period of the project is closest to:

In capital budgeting computations,discounted cash flow methods:

Baldock Inc.is considering the acquisition of a new machine that costs $420,000 and has a useful life of 5 years with no salvage value.The incremental net operating income and incremental net cash flows that would be produced by the machine are: Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period of this investment is closest to:

Shiffler Corporation is contemplating purchasing equipment that would increase sales revenues by $246,000 per year and cash operating expenses by $133,000 per year.The equipment would cost $275,000 and have a 5 year life with no salvage value.The annual depreciation would be $55,000. Required: Determine the simple rate of return on the investment to the nearest tenth of a percent.Show your work!

The required rate of return is the minimum rate of return that an investment project must yield to the acceptable.

The Sawyer Corporation has $80,000 to invest and is considering two different projects,X and Y.The following data are available on the projects: Both projects will have a useful life of 5 years;at the end of 5 years,the working capital will be released for use elsewhere.Sawyer's discount rate is 12%. The net present value of project Y is closest to:

Clairmont Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years.At the end of 5 years,the machine would have a salvage value of $18,000.By reducing labor and other operating costs,the machine would provide annual cost savings of $37,000.The company requires a minimum pretax return of 12% on all investment projects. The present value of the annual cost savings of $37,000 is closest to:

Frick Road Paving Corporation is considering an investment in a curb-forming machine.The machine will cost $180,000,will last 10 years,and will have a $30,000 salvage value at the end of 10 years.The machine is expected to generate net cash inflows of $40,000 per year in each of the 10 years.Frick's discount rate is 10%.The net present value of the proposed investment is closest to:

Jimba's,Inc. ,has purchased a new donut maker.It cost $20,000 and has an estimated life of 10 years.The following annual donut sales and expenses are projected: Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period on the new machine is closest to:

The management of Sobus Corporation is considering a project that would require an initial investment of $458,000 and would last for 9 years.The annual net operating income from the project would be $58,000,including depreciation of $48,000.At the end of the project,the scrap value of the project's assets would be $26,000. Required: Determine the payback period of the project.Show your work!

Which of the following will have the largest dollar effect on the net present value of a 10 year investment project?

Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions.The auto was purchased for $28,000 and will have a 6-year useful life and a $4,000 salvage value.Delivering prescriptions (which the pharmacy has never done before)should increase gross revenues by at least $32,000 per year.The cost of these prescriptions to the pharmacy will be about $25,000 per year.The pharmacy depreciates all assets using the straight-line method.The payback period for the auto is closest to:

Farah Corporation has provided the following data concerning a proposed investment project: The company uses a discount rate of 11%.The working capital would be released at the end of the project. Required: Compute the net present value of the project.

Schoultz Corporation has provided the following data concerning an investment project that it is considering: The life of the project is 4 years.The company's discount rate is 12%.The net present value of the project is closest to: