Question 5 (2.5 points) A company uses the net present value method to evaluate

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Question 5 (2.5 points)

A company uses the net present value method to evaluate planned capital expenditures. Everything else being equal, the lower the required rate of return they use, the ____ will be the net present value.

Question 5 options:

higher

can't be determined

lower

identical

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Question 6 (2.5 points)

The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company's tax rate is 40 percent.

The after-tax net cash inflow on the investment is

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Question 7 (2.5 points)

The Sip & Dip Donut company is considering the acquisition of a new automatic donut dropper for $600,000. The machine will have a six-year life and will produce before tax cash savings of $200,000 each year. The asset is to be depreciated using the straight-line method with no salvage value. The company's tax rate is 40 percent.

The payback period is

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Question 8 (2.5 points)

Equipment is purchased at a cost of $39,000. As a result, annual cash revenues will increase by $20,000; annual cash operating expenses will increase by $7,000; straight-line depreciation is used; the asset has a ten-year life; the salvage value is $3,000. Assuming a tax bracket of 34%, determine the accounting rate of return? (round to the nearest %)

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Question 9 (2.5 points)

Shirt Co. wants to purchase a new cutting machine for its sewing plant. The investment is expected to generate annual net cash inflows of $30,000, have a useful life of 8 years, and an estimated salvage value of $10,000. If Shirt Co. has a required rate of return of 12%, the maximum amount they will be willing to spend for this machine is

Question 9 options:

higher

can't be determined

lower

identical

Explanation / Answer

As per Chegg guidelines we answer one question per post but I have answered more than 1 Question Q5 higher Since PVF would be lower which would mean higher cash inflows and ultimately high NPV Q6 The after-tax net cash inflow on the investment is        160,000.00 Cash Savings      200,000.00 Depreciation per year =600,000/6      100,000.00 Net income before Tax      100,000.00 Tax @40%        40,000.00 Net income after Tax        60,000.00 Add : Depreciation      100,000.00 Cash flows after Tax      160,000.00 Q7 PBP Time Amount Cumulative                                                                                       -   (600,000.00)      (600,000.00)                                                                                  1.00      160,000.00      (440,000.00)                                                                                  2.00      160,000.00      (280,000.00)                                                                                  3.00      160,000.00      (120,000.00)                                                                                  4.00      160,000.00           40,000.00                                                                                  5.00      160,000.00         200,000.00                                                                                  6.00      160,000.00         360,000.00 PBP= 3 + 120,000/160,000 PBP= 3.75 Years

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