The management of Wyoming Corporation is considering the purchase of a new machi

Question

The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation:


Year Income from
Operations Net Cash
    Flow 1 $18,750 $93,750 2 18,750 93,750 3 18,750 93,750 4 18,750 93,750 5 18,750 93,750

The cash payback period for this investment is: A) 4 years
B) 5 years
C) 3 years
D) 20 years
2. The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation:


Year Income from
Operations Net Cash
    Flow 1 $18,750 $93,750 2 18,750 93,750 3 18,750 93,750 4 18,750 93,750 5 18,750 93,750

The average rate of return for this investment is: A) 15%
B) 10%
C) 5%
D) 25%
3. The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation:


Year Income from
Operations Net Cash
    Flow 1 $18,750 $93,750 2 18,750 93,750 3 18,750 93,750 4 18,750 93,750 5 18,750 93,750

The net present value for this investment is: A) Negative $19,875
B) Positive $118,145
C) Positive $19,875
D) Negative $118,145
4. The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability in this situation:


Year Income from
Operations Net Cash
    Flow 1 $18,750 $93,750 2 18,750 93,750 3 18,750 93,750 4 18,750 93,750 5 18,750 93,750


The present value index for this investment is: A) .95
B) 1.00
C) 1.05
D) 1.25

Explanation / Answer

1. A (4 years)

2. B (10%)

3. C (Positive $19,875)

4. C (1.05)

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