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# 1) A company is considering the purchase of new equipment for \$90,000. The projected annual net...

## Question

###### 1) A company is considering the purchase of new equipment for \$90,000. The projected annual net...

1)

A company is considering the purchase of new equipment for \$90,000. The projected annual net cash flows are \$35,500. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 8% return on investment. The present value of an annuity of \$1 for various periods follows:

 Period Present value of an annuity of \$1 at 8% 1 0.9259 2 1.7833 3 2.5771

What is the net present value of this machine assuming all cash flows occur at year-end?

Multiple Choice

• \$30,000

• \$4,500

• \$1,487

• \$34,500

• \$88,910

2)

The following present value factors are provided for use in this problem.

 Periods Present Value of \$1 at 8% Present Value of an Annuity of \$1 at 8% 1 0.9259 0.9259 2 0.8573 1.7833 3 0.7938 2.5771 4 0.7350 3.3121

Xavier Co. wants to purchase a machine for \$36,900 with a four year life and a \$1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are \$11,900 in each of the four years. What is the machine's net present value?

Multiple Choice

• \$3,396.

• \$2,514.

• \$40,296.

• \$(3,396).

• \$(2,514).

3)

A company is considering the purchase of a new machine for \$57,000. Management predicts that the machine can produce sales of \$16,900 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling \$7,100 per year including depreciation of \$4,900 per year. Income tax expense is \$3,920 per year based on a tax rate of 40%. What is the payback period for the new machine?

Multiple Choice

• 3.37 years.

• 6.40 years.

• 5.29 years.

• 11.63 years.

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