Exam 12: Performance Measurement in Decentralized Organizations

The following data pertain to an investment proposal: The net present value of the proposed investment is closest to:

Hinck Corporation is investigating automating a process by purchasing a new machine for $520,000 that would have a 8 year useful life and no salvage value.By automating the process,the company would save $134,000 per year in cash operating costs.The company's current equipment would be sold for scrap now,yielding $22,000.The annual depreciation on the new machine would be $65,000. Required: Determine the simple rate of return on the investment to the nearest tenth of a percent.Show your work!

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 X is closest to:

Sturn Corporation purchased a machine with an estimated useful life of seven years.The machine will generate cash inflows of $9,000 each year over the next seven years.If the machine has no salvage value at the end of seven years,if Stutz's discount rate is 10%,and if the net present value of this investment is $17,000 then the purchase price of the machine was closest to:

The management of Moya Corporation is investigating purchasing equipment that would cost $336,000 and have an 8 year life with no salvage value.The equipment would allow an expansion of capacity that would increase sales revenues by $288,000 per year and cash operating expenses by $164,000 per year. Required: Determine the simple rate of return on the investment to the nearest tenth of a percent.Show your work!

The Zinger Corporation is considering an investment that has the following data: Cash inflows occur evenly throughout the year.The payback period for this investment is:

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

Messersmith Corporation is investigating automating a process by purchasing a machine for $688,000 that would have an 8 year useful life and no salvage value.By automating the process,the company would save $160,000 per year in cash operating costs.The new machine would replace some old equipment that would be sold for scrap now,yielding $19,000.The annual depreciation on the new machine would be $86,000.The simple rate of return on the investment is closest to:

The management of Cantell Corporation is considering a project that would require an initial investment of $47,000.No other cash outflows would be required.The present value of the cash inflows would be $55,930.The profitability index of the project is closest to:

Dimpson Corporation is considering the following three investment projects: The only cash outflows are the initial investments in the projects. Required: Rank the investment projects using the project profitability index.Show your work

Preference decisions follow screening decisions and seek to rank investment proposals in order of their desirability.

One criticism of the payback method is that it ignores cash flows that occur after the payback point has been reached.

The following data on a proposed investment project have been provided: The working capital would be released for use elsewhere at the end of the project.The net present value of the project is closest to:

Bill Anders retires in 5 years.He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other working capital needs.Other outlets in the fast-food chain have an annual net cash inflow of about $160,000.Mr.Anders would close the outlet in 5 years.He estimates that the equipment could be sold at that time for about 10% of its original cost and the working capital would be released for use elsewhere.Mr.Anders' required rate of return is 16%. Required: What is the investment's net present value? Is this an acceptable investment?

Czlapinski Corporation is considering a capital budgeting project that would require an initial investment of $440,000 and working capital of $32,000.The working capital would be released for use elsewhere at the end of the project in 4 years.The investment would generate annual cash inflows of $147,000 for the life of the project.At the end of the project,equipment that had been used in the project could be sold for $11,000.The company's discount rate is 7%.The net present value of the project is closest to:

For capital budgeting decisions,the simple rate of return method is superior to the net present value method.

The management of Kleppe Corporation is investigating automating a process by replacing old equipment by a new machine.The old equipment would be sold for scrap now for $19,000.The new machine would cost $180,000,would have a 9 year useful life,and would have no salvage value.By automating the process,the company would save $30,000 per year in cash operating costs. Required: Determine the simple rate of return on the investment to the nearest tenth of a percent.Show your work!

Harrison Corporation is studying a project that would have an eight-year life and would require a $300,000 investment in equipment which has no salvage value.The project would provide net operating income each year as follows for the life of the project: The company's required rate of return is 10%.The payback period for this project is closest to:

Zabarkes Corporation is considering a capital budgeting project that would require an initial investment of $640,000 and working capital of $79,000.The working capital would be released for use elsewhere at the end of the project in 3 years.The investment would generate annual cash inflows of $205,000 for the life of the project.At the end of the project,equipment that had been used in the project could be sold for $29,000.The company's discount rate is 7%.The net present value of the project is closest to:

Kingsolver 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.The net present value of the project is closest to: