Assume that a company is considering buying a new piece of equipment for $280,000 that...
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Accounting
Assume that a company is considering buying a new piece of equipment for $280,000 that would have a useful life of five years and a salvage value of $50,000. The equipment would generate the following estimated annual revenues and expenses:
Revenues $ 120,000
Less operating expenses:
Commissions $ 15,000
Insurance 5,000
Depreciation 46,000
Maintenance 30,000 96,000
Net operating income $ 24,000
The company also believes that this investment would provide some annual intangible benefits that are difficult to quantify. Assuming a discount rate of 20%, the minimum dollar value per year that must be provided by the equipments intangible benefits to justify the $280,000 investment is closest to:
Multiple Choice
$51,944.
$60,894.
$16,894.
$7,944.
2. Assume that a company is considering a capital investment project with a four-year time horizon and the following cash flows:
Cost of new equipment
$ 190,000
Working capital required
$ 50,000
Annual net cash inflows
$ 100,000
Maintenance and repairs in third year
$ 40,000
Salvage value of equipment in fourth year
$ 30,000
Assuming the companys required rate of return is 20%, the profitability index of the project is closest to:
Multiple Choice
1.14.
1.17.
1.33.
1.21.
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