1. CHAPTER 13
# 1.1 (2.5 pts.)
The discount rate must be specified in advance for which of the following methods?

Option A

Option B

Option C

Option D
# 1.2 (2.5 pts.)
(Ignore income taxes in this problem.) The Valentine Company has decided to buy a machine costing $14,750. Estimated cash savings from using the new machine amount to $4,500 per year. The machine will have no salvage value at the end of its useful life of five years. If Valentine’s required rate of return is 10%, the machine’s internal rate of return is closest to:

10%

12%

14%

16%
# 1.3 (2.5 pts.)
(Ignore income taxes in this problem.) Lichty Car Wash has some equipment that needs to be rebuilt or replaced. The following information has been gathered concerning this decision: Lichty uses the total-cost approach and a discount rate of 10% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of five years Mr. Lichty plans to close the car wash and retire. If the new equipment is purchased, the present value of all cash flows that occur now is:

$(45,000)

$(39,000)

$(37,000)

$(34,000)
# 1.4 (2.5 pts.)
(Ignore income taxes in this problem.) The management of Rouleau Corporation is investigating automating a process. Old equipment, with a current salvage value of $10,000, would be replaced by a new machine. The new machine would be purchased for $240,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $64,000 per year in cash operating costs. The simple rate of return on the investment is closest to:

10.0%

26.7%

10.4%

16.7%
# 1.5 (2.5 pts.)
(Ignore income taxes in this problem.) In order to receive $12,000 at the end of three years and $10,000 at the end of five years, how much must be invested now if you can earn 14% rate of return?

$12,978

$8,100

$13,290

$32,054
# 1.6 (2.5 pts.)
(Ignore income taxes in…