Exam 12: Performance Measurement in Decentralized Organizations

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

Crowley Corporation is considering three investment projects: F,G,and H.Project F would require an investment of $21,000,Project G of $49,000,and Project H of $82,000.No other cash outflows would be involved.The present value of the cash inflows would be $21,210 for Project F,$57,820 for Project G,and $95,120 for Project H.Rank the projects according to the profitability index,from most profitable to least profitable.

The simple rate of return method does not take into account the time value of money.

Bowen Corporation is considering several investment proposals,as shown below: If the project profitability index is used,the ranking of the projects from most to least profitable would be:

Dunay Corporation is considering investing $510,000 in a project.The life of the project would be 4 years.The project would require additional working capital of $24,000,which would be released for use elsewhere at the end of the project.The annual net cash inflows would be $162,000.The salvage value of the assets used in the project would be $41,000.The company uses a discount rate of 10%. Required: Compute the net present value of the project.

Vinup Corporation has provided the following data concerning an investment project that it is considering: The working capital would be released for use elsewhere at the end of the project in 4 years.The company's discount rate is 13%.The net present value of the project is closest to:

The following data concern an investment project: The working capital will be released for use elsewhere at the conclusion of the project. Required: Compute the project's net present value.

Villena Corporation is considering a project that would require an investment of $48,000.No other cash outflows would be involved.The present value of the cash inflows would be $52,800.The profitability index of the project is closest to:

Lebert,Inc. ,is considering the purchase of a machine that would cost $380,000 and would last for 7 years.At the end of 7 years,the machine would have a salvage value of $49,000.The machine would reduce labor and other costs by $96,000 per year.Additional working capital of $6,000 would be needed immediately.All of this working capital would be recovered at the end of the life of the machine.The company requires a minimum pretax return of 18% on all investment projects. The net present value of the proposed project is closest to:

Dube Corporation is considering the following three investment projects: The profitability index of investment project E is closest to:

Vernon Corporation has been offered a 5-year contract to supply a part for the military.After careful study,the company has developed the following estimated data relating to the contract: It is not expected that the contract would be extended beyond the initial contract period.The company's discount rate is 10%. Required: Use the net present value method to determine if the contract should be accepted.

The management of Duker Corporation is investigating purchasing equipment that would increase sales revenues by $130,000 per year and cash operating expenses by $39,000 per year.The equipment would cost $328,000 and have an 8 year life with no salvage value.The simple rate of return on the investment is closest to:

Betterway Pharmacy has purchased a small auto for delivery of prescriptions.The auto cost $30,000 and will be usable for five years.Delivery of prescriptions (which the pharmacy has never done before)should increase revenues by at least $29,000 per year.The cost of these prescriptions will be about $21,000 per year.The pharmacy depreciates all assets by the straight-line method. Required: a.Compute the payback period on the new auto. b.Compute the simple rate of return of the new auto.

Flamio Corporation is considering a project that would require an initial investment of $210,000 and would last for 6 years.The incremental annual revenues and expenses for each of the 6 years would be as follows: At the end of the project,the scrap value of the project's assets would be $24,000. Required: Determine the payback period of the project.Show your work!

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 simple rate of return on the new machine is closest to:

The project profitability index is computed by dividing the present value of the cash inflows of the project by present value of the cash outflows of the project.

Mujalli Corporation is considering a capital budgeting project that would require an initial investment of $200,000.The investment would generate annual cash inflows of $64,000 for the life of the project,which is 4 years.At the end of the project,equipment that had been used in the project could be sold for $10,000.The company's discount rate is 9%.The net present value of the project is closest to:

Riveros,Inc. ,is considering the purchase of a machine that would cost $120,000 and would last for 8 years.At the end of 8 years,the machine would have a salvage value of $29,000.The machine would reduce labor and other costs by $25,000 per year.Additional working capital of $9,000 would be needed immediately.All of this working capital would be recovered at the end of the life of the machine.The company requires a minimum pretax return of 18% on all investment projects.The net present value of the proposed project is closest to:

Westland College has a telephone system that is in poor condition.The system either can be overhauled or replaced with a new system.The following data have been gathered concerning these two alternatives: Westland College uses a 10% discount rate and the total cost approach to net present value analysis.The working capital required under the new system would be released for use elsewhere at the conclusion of the project.Both alternatives are expected to have a useful life of eight years. The net present value of the new system alternative is:

Carlson Manufacturing has some equipment that needs to be rebuilt or replaced.The following information has been gathered relative to this decision: Carlson uses the total cost approach to net present value analysis and a discount rate of 12%.Regardless of which option is chosen,rebuild or replace,at the end of five years Carlson Manufacturing will have no future use for the equipment. If the equipment is rebuilt,the present value of the cash flows that occur now is: