can someone please explain the steps? especially for question #4 Indicate the be

Question

can someone please explain the steps? especially for question #4

Indicate the best answer for each question in the space provided. Which of the following is not a capital budgeting decision? a Whether to acquire a subsidiary company b Whether to expand a product line. 1 Whether to fill a special order. d Whether to purchase a fleet of trucks. Which of the following is an example of a nonfinancial consideration in capital budgeting? a Will an investment generate adequate cash flows to promptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive net present value? 2 Will an investment have an adverse effect on the environment? 3 Which of the following is not considered when using the payback period to evaluate an investment? The profitability ofthe investment over its entire life. b The annual net cash flow of the investment. c The cost of the investment. The expected life of the investment. d Use the following data for questions 4 and 5. Stone Mfg. is considering expanding operations by investing $300,000-in equipment. The equipment has a useful life of eight years, with no salvage value. Straight-line depreciation is used, Stone predicts that net income will increase $37,500 per year as a result of this strategy. Refer to the above data. a-18 years 4 The payback period for this investment is: / SK UN er 13 years d 2.5 years. s Refer to the ahove data. Return on average investment for this investment is: 25%. 20%. 12 1/2%. 15%. a d 5%

Explanation / Answer

Question - 4

Payback period = Investment / Annual cash inflow = 300,000 / 75000 = 4 Years.........final answer

Investment = 300,000 ( given)

Annual cash flow = Net Income + Depreciation = 37500 + 300,000 / 8 years = 75000

Question - 5

Return on average investment = Net Income / ( Investment * 1/2) = 37500 / 150000 * 100 = 25%

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