Colin’s Haberdashery Products is considering a project that
would have an initial cost of $285,000 and a 4-year life. The project’s assets
will be depreciated using straight-line depreciation to a zero book value over
the life of the project. Projected cash flow from the project is forecast at
$83,650, $92,850, $94,350 and $93,250 respectively for the next 4 years.
Projected annual net income from the project is forecast at $12,400, $21,600,
$23,100 and $22,000 for the next 4 years, respectively. What is the average
accounting return?

6.94 percent

13.88 percent

15.66 percent

27.75 percent

31.31 percent

Symbiotic Accounting Products is considering launching a
project with an initial cost of $7,800. What is the payback period for this
project if the cash inflows are $1,100, $1,640, $3,800 and $4,500 a year over
the next four years respectively?

3.21 years

3.28 years

3.36 years

4.21 years

4.29 years

The Mitre Box Company is considering a project with an
initial cost of $35,000 and future cash inflows of $20,000, $15,000, $10,000
and $5,000 over the next four years respectively. If the company requires a 9.5
percent rate of return, should the company accept the project?

No; the NPV is negative.

Yes; the NPV is $3,874.

Yes; the NPV is $5,207.

Yes; the NPV is $6,869.

Cannot be determined from the information given.

Campbell’s Coffee Shop is trying to analyze a project that
requires a $135,000 investment in fixed assets. When the project ends, those
assets are expected to have an after-tax salvage value of $35,000. How should
Campbell handle the $35,000 salvage value when computing the net present value
of the project?

do not include in the net present value computation

reduce the cash outflow at time zero

add to cash inflow in the final year of the project

add to cash inflow in the year following the final year of
the project

prorate and add to cash inflow over the life of the project

A company purchased a piece of milling equipment 4 years ago
for $149,000 and at the beginning of last year spent $11,000 to update the
equipment with the latest technology. The company no longer uses this equipment
in its current operations and has rec’d an offer of $110,000 from a firm to
purchase it. The company is debating whether to sell it or expand operations so
that the equipment can be used. When evaluating the expansion option, what
value, if any should the firm assign to this equipment as an initial cost of
the project?

$0

$21,000

$89,000

$110,000

$160,000

A company is considering a new 4 year expansion project that
requires an initial investment of $3 million. The fixed asset will be
depreciated straight line to zero over its 4 year tax life after which time it
will be sold. Assume it will be sold for $231,000, it’s estimated market value
at the end of 4 years. The project requires an initial investment in net
working capital of $330,000 all of which will be recovered at the end of the
project. The project is estimate to generate $2,640,000 in annual sales with
costs of $1,056.000. The tax rate is 30 percent and the required return for the
project is 11.5 percent. What is the net present value for this project?

$1,082,378

$1,127, 215

$1,333, 800

$1,825,500

$1,202, 965