The document presents cash flow information over 5 years for a proposed $500,000 investment that is not expected to have any salvage value. Cash flows occur annually at the end of each year, ranging from $0 in year 1 to $144,000 in year 5. The company uses a 12% after-tax target rate of return to evaluate projects. It also provides present value discount factors for a 12% rate of return.
The document presents cash flow information over 5 years for a proposed $500,000 investment that is not expected to have any salvage value. Cash flows occur annually at the end of each year, ranging from $0 in year 1 to $144,000 in year 5. The company uses a 12% after-tax target rate of return to evaluate projects. It also provides present value discount factors for a 12% rate of return.
The document presents cash flow information over 5 years for a proposed $500,000 investment that is not expected to have any salvage value. Cash flows occur annually at the end of each year, ranging from $0 in year 1 to $144,000 in year 5. The company uses a 12% after-tax target rate of return to evaluate projects. It also provides present value discount factors for a 12% rate of return.
The document presents cash flow information over 5 years for a proposed $500,000 investment that is not expected to have any salvage value. Cash flows occur annually at the end of each year, ranging from $0 in year 1 to $144,000 in year 5. The company uses a 12% after-tax target rate of return to evaluate projects. It also provides present value discount factors for a 12% rate of return.
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A proposed investment is not expected to have any salvage value at the end of its 5-year life.
For present value
purposes, cash flows are assumed to occur at the end of each year. The company uses a 12% after-tax target rate of return. Purchase Cost Annual Net After- Annual Year and Book Value Tax Cash Flows Net Income 0 $500,000 $ 0 $ 0 1 336,000 240,000 70,000 2 200,000 216,000 78,000 3 100,000 192,000 86,000 4 36,000 168,000 94,000 5 0 144,000 102,000
Discount Factors for a 12% Rate of Return
Present Value of $1 at Present Value of an Annuity of The End of Each Period $1 at the End of Each Period Year 1 .89 .89 2 .80 1.69 3 .71 2.40 4 .64 3.04 5 .57 3.61 6 .51 4.12
197. The accounting rate of return based on the average investment is (E) a. 84.9% c. 40.8% b. 34.4% d. 12%
198. The net present value is (E)
a. $304,060 c. $(70,000) b. $212,320 d. $712,320
199. The traditional payback period is (E)
a. Over 5 years. c. 1.65 years. b. 2.23 years. d. 2.83 years.
200. The profitability index is (E)
a. 0.61 c. 0.86 b. 0.42 d. 1.425
201. Which statement about the internal rate of return of the investment is true? (E) a. The IRR is exactly 12%. b. The IRR is over 12%. c. The IRR is under 12%. d. No information about the IRR can be determined
