1. (Ignore income taxes in this problem.) Sibble Corporation is considering the purchase of a machine that would cost $330,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $50,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $76,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to:

-$56,020

-$6,020

-$48,764

-$27,670

2. (Ignore income taxes in this problem.) The Higgins Company has just purchased a piece of equipment at a cost of $120,000. This equipment will reduce operating costs by $40,000 each year for the next eight years. This equipment replaces old equipment which was sold for $8,000 cash. The new equipment has a payback period of:

8.0 years

2.8 years

10.0 years

3.0 years

3. (Ignore income taxes in this problem.) Hartong Corporation is contemplating purchasing equipment that would increase sales revenues by $185,000 per year and cash operating expenses by $89,000 per year. The equipment would cost $416,000 and have a 8 year life with no salvage value. The annual depreciation would be $52,000. The simple rate of return on the investment is closest to:

23.8%

12.5%

10.6%

23.1%

4. (Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that costs $480,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are:

The payback period of this investment is closest to:

3.1 years

2.9 years

5.0 years

3.5 years

5. (Ignore income taxes in this problem.) The management of Melchiori Corporation is considering the purchase of a machine that would cost $310,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $116,000 per year. The company requires a minimum pretax return of 16% on all investment projects.

The present value of the annual cost savings of $116,000 is closest to:

$427,460

$696,000

$175,448

$1,041,462

6. (Ignore income taxes in this problem.) The management of Melchiori Corporation is considering the purchase of a machine that would cost $310,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $116,000 per year. The company requires a minimum pretax return of 16% on all investment projects.

The net present value of the proposed project is closest to:

$286,179

$386,000

$117,460

$158,431

7. (Ignore income taxes in this problem.) The Finney Company is reviewing the possibility of remodeling one of its showrooms and buying some new equipment to improve sales operations. The remodeling would cost $120,000 now and the useful life of the project is 10 years. Additional working capital needed immediately for this project would be $30,000; the working capital would be released for use elsewhere at the end of the 10-year period. The equipment and other materials used in the project would have a salvage value of $10,000 in 10 years. Finney's discount rate is 16%.

The immediate cash outflow required for this project would be:

$(120,000)

$(150,000)

$(90,000)

$(130,000)