The following data pertain to an investment proposal (Ignore income taxes.). Please use PV tables to complete this problem. Cost of the investment $ 44,000   Annual cost savings  $ 14,000   Estimated salvage value $ 3,000   Life of the project 5 years Discount rate 13%   The net present value of the proposed investment is closest to:

Ridge Outfitters is considering a project that would require an investment of $334,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows (Ignore income taxes.): Sales $ 230,000 Variable expenses 18,000 Contribution margin 212,000 Fixed expenses:   Salaries 36,000 Rents 49,000 Depreciation 44,000 Total fixed expenses 129,000 Net operating income $ 83,000 The scrap value of the project’s assets at the end of the project would be $26,000. The cash inflows occur evenly throughout the year. The project’s payback period is closest to:

River and Co. is considering purchasing a machine that would cost $457,050 and have a useful life of 7 years. The machine would reduce cash operating costs by $83,100 per year. The machine would have a salvage value of $107,120 at the end of the project. (Ignore income taxes.) Compute the payback period for the machine. Note: please round to two decimal places: i.e., 0.00

Nova Cloud’s management is considering investing in aircraft that would have a useful life of 7 years. The company uses a discount rate of 12% in its capital budgeting. The net present value of the investment, excluding the annual cash inflow, is −$405,814. (Ignore income taxes.) How large would the annual cash inflow have to be to make Nova’s investment in the aircraft financially attractive? Note: You will need the PV tables for this question.

Cedar House Corp. has not yet decided on the required rate of return to use in its capital budgeting. This lack of information will prevent Cedar House from calculating a project’s:   Payback Net Present Value Internal Rate of Return 1) No No No 2) Yes Yes Yes 3) No Yes Yes 4) No Yes No

Pixel Forge Co. is investigating an investment in machinery that is expected to have a useful life of 7 years. The company uses a discount rate of 15% in its capital budgeting. The net present value of the investment, excluding the salvage value, is −$580,450. (Ignore income taxes.) How large would the salvage value of the machinery have to be for the investment in it to be financially attractive? Note: You will need the PV tables for this question.

Cedar House Corp. has not yet decided on the required rate of return to use in its capital budgeting. This lack of information will prevent Cedar House from calculating a project’s:   Payback Net Present Value Internal Rate of Return 1) No No No 2) Yes Yes Yes 3) No Yes Yes 4) No Yes No

Which of the following statements is true? An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project. The minimum required rate of return is the discount rate that makes the net present value of the project equal to zero.

Crystal Tech has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment $ 32,000   Annual cash inflows  $ 6,800   Salvage value of equipment $ 0   Life of the investment 15 years Required rate of return 10%   Crystal uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. Note: You will need the PV tables for this question. The internal rate of return of the investment is closest to: 

Which of the following statements is true? In the payback method, depreciation is added back to net operating income when computing the annual net cash flow. When a company is cash poor, a project with a short payback period but a low rate of return may be preferred to a project with a long payback period and a high rate of return. A shorter payback period does not necessarily mean that one investment is more desirable than another.