Exam 12: Performance Measurement in Decentralized Organizations

(Ignore income taxes in this problem)The management of Urbine Corporation is considering the purchase of a machine that would cost $350,000,would last for 6 years,and would have no salvage value.The machine would reduce labor and other costs by $79,000 per year.The company requires a minimum pretax return of 14% on all investment projects.The net present value of the proposed project is closest to:

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 new equipment is purchased,the present value of the cash flows that occur now 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 new equipment is purchased,the present value of the annual cash operating costs associated with this alternative is:

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 net present value of the proposed project is closest to:

The investment required for the project profitability index should:

The net present value of an investment project is $28,842 and its project profitability index is 0.1518.The initial investment in this project was:

The management of Mashiah Corporation is considering the purchase of a machine that would cost $290,000,would last for 6 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 13% on all investment projects. The net present value of the proposed project is closest to:

Valotta 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:

Tangen Corporation is considering the purchase of a machine that would cost $380,000 and would last for 6 years.At the end of 6 years,the machine would have a salvage value of $80,000.By reducing labor and other operating costs,the machine would provide annual cost savings of $104,000.The company requires a minimum pretax return of 14% on all investment projects.The net present value of the proposed project is closest to:

The Halsey Corporation is contemplating the purchase of new equipment that would require an initial investment of $125,000.The equipment would have a useful life of six years,with a salvage value of $29,000.This new equipment would be depreciated over its useful life by the straight-line method.It would replace existing equipment which is fully depreciated.The existing equipment has a salvage value now of $38,000.The anticipated annual revenues and expenses associated with the new equipment are: Assume cash flows occur uniformly throughout a year except for the initial investment and the salvage value at the end of the project. The payback period is closest to:

Janes,Inc. ,is considering the purchase of a machine that would cost $400,000 and would last for 5 years,at the end of which,the machine would have a salvage value of $67,000.The machine would reduce labor and other costs by $109,000 per year.Additional working capital of $4,000 would be needed immediately,all of which would be recovered at the end of 5 years.The company requires a minimum pretax return of 12% on all investment projects. Required: Determine the net present value of the project.Show your work!

If taxes are ignored,all of the following items are included in a discounted cash flow analysis except:

Alesi Corporation is considering purchasing a machine that would cost $243,600 and have a useful life of 8 years.The machine would reduce cash operating costs by $76,125 per year.The machine would have a salvage value of $60,900 at the end of the project. Required: a.Compute the payback period for the machine. b.Compute the simple rate of return for the machine.

Dul 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 3 years.The company's discount rate is 7%.The net present value of the project is closest to:

Chee Corporation has gathered the following data on a proposed investment project: The company uses straight-line depreciation.Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period for the investment is closest to:

Chee Corporation has gathered the following data on a proposed investment project: The company uses straight-line depreciation.Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return on the investment is closest to:

Consider the following three investment opportunities: Project I would require an immediate cash outlay of $10,000 and would result in cash savings of $3,000 each year for 5 years. Project II would require cash outlays of $3,000 per year and would provide a cash inflow of $30,000 at the end of 5 years. Project III would require a cash outlay of $10,000 now and would provide a cash inflow of $30,000 at the end of 5 years. Required: The discount rate is 14%.Use the net present value method to determine which,if any,of the three projects is acceptable.

The project profitability index is used to compare the net present values of two investments that require different amounts of investment funds.