7. (TCO 6) The profitability index is computed by dividing the (Points: 5) total

Question

7. (TCO 6) The profitability index is computed by dividing the (Points: 5) total cash flows by the initial investment. present value of cash inflows by the present value of each outflow. initial investment by the total cash flows. initial investment by the present value of cash flows. 8. (TCO 6) A company projects annual cash inflows of $85,000 each year for the next five years if it invests $300,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $75,000. What is the accounting rate of return on this investment? (Points: 5) 28.3% 13.3% 1 5% 43.3%

Explanation / Answer

ANSWER TO 1- B

PRESENT VALUE OF CASH INFLOW BY THE PRESENT VALUE OF CASH OUTFLOW

ANSWER TO 2-a 28.3%

(85000/300000)*100 = 28.3%

3- ANSWER TO 3- CONTROLLING

4-ANSWER TO 4- is relatively easy to compute and understand.

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