54. A company with $500,000 in operating assets is considering the purchase of a

Question

54. A company with $500,000 in operating assets is considering the purchase of a machine that costs S60,000 and which is expected to reduce operating costs by $15,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to (Ognore income taxes.): A) 0.25 years B) 8.3 years C) 4 years D) 33.3 years 55. An investment project requires an initial investment of $100,000. The project is expected to generate net cash inflows of $28,000 per year for the next five years. These cash inflows occur evenly throughout the year. Assuming a 12% discount rate, the project's payback period is (Ignore income taxes): A) 0.28 years B) 3.36 years C) 3.57 years D) 1.40 years 56. The management of Plotnik Corporation is investigating purchasing equipment that would increase sales revenues by $269,000 per year and cash operating expenses by $156,000 per year. The equipment would cost $294,000 and have a 6 year life with no salvage value. The simple rate of return on the investment is closest to (Ignore income taxes.): A) 16.7% B) 38.4% C) 23.8% D)21.8% 57. The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in Dept. B. At the beginning of the year, the Corporation made the following estimates: Direct labor cost Manufacturing overhead Direct labor-hours Dept. A Dept. B S 60,000 S 40,000 $ 90,000 S 45,000 6,000 2,000 15,000 What predetermined overhead rates would be used in Dept. A and Dept. B, respectively? A) 67% and $3.00 B) I 50% and $5.00 C) 150% and $3.00 D) 6796 and $5.00

Explanation / Answer

Solution 54 - Answer (C)

Calculation of payback period

Payback period is duration required to recover the investment cost

Payback period = Cost Of Investment/Annual cash inflow

Cost of Investment = $60000

Annual Cash inflow = $15000

Payback Period = $60000/$15000 = 4 years

Payback period = Cost Of Investment/Annual cash inflow

Cost of Investment = $60000

Annual Cash inflow = $15000

Payback Period = $60000/$15000 = 4 years

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