Which of the following statements is least likely correct?

Which statement about two mutually exclusive projects is most accurate?

Under which circumstances the payback period and discounted payback period would end up being equal?

Calculate the payback period for the following project A: y0 cf (75,000) y1 cf 45,000 y2 cf 20,000 y3 cf 15,000 y4 cf 10,000

Which of the following statements about the NPV and the IRR is most likely accurate?

Given the following information about two independent projects – A and B, what should an analyst decide? Assume the opportunity cost of capital for both projects is equal to 7%: y0 yr end cf of a (5,000) y0 yr end cf of b (3,000) y1 yr end cf of a 2,500 y1 yr end cf of b 1,500 y2 yr end cf of a 3,500 y2 yr end cf of b 2,500

Which of the following statements is least likely accurate?

Which of the following statements about the NPV profiles of two projects is most accurate?

Calculate the average accounting rate of return for the following projects. Assume that the initial investment of 100 will be depreciated using straight-line over 2 years and the salvage value will be zero.

Calculate the profitability index (PI) for the following cash flow structure. Assume the required rate of return is equal to 10%.

Which of the following projects is most likely to have a problem when we calculate its IRR?

Examine the following information about two mutually exclusive projects A and B. Which of the two projects is most likely to be selected?

Business risk encompasses operating risk and:

Which of the following statements most accurately describes the financial risks that a company faces?

Which of the following does not affect the level of operating leverage?

The management of JV Company plans to replace a sorting machine that was acquired several years ago at a cost of P850,000. The machine has been depreciated to its residual value of P90,000. A new sorter can be purchased for P2,940,000; 3/10, n/30. The dealer will grant a trade-in allowance of P176,000 on the old machine. If a new machine is not purchased, JV Company will spend P745,000 to repair the old machine. Gains and losses on trade-in transactions are not subject to income tax. The cost to repair the old machine can be deducted in the first year for computing income tax. Income tax is estimated at 40% of the income subject to tax. Required: The net investment assigned to the new machine for decision analysis.

JM Corporation plans to acquire new equipment costing P1,340,000 to replace the equipment that is now being used. Freight charges on the new equipment are estimated at P75,000 and it will cost P90,000 to install. A special attachment to be used with this unit will be needed and will cost P64,000. If the new equipment is acquired, operations will be expanded and this will require additional working capital of P310,000. The old equipment had a net book value of P45,ooo and will be sold for P25,000. If the new equipment is not purchased, the old equipment must be overhauled at a cost of P320,000. This cost is deductible for tax purposes in the year incurred. The tax rate is 30%. Required: Net investment in the new equipment

Julie Company plans to open a new branch office wherein the company shall invest P2,500,000 in furnishings and equipment. Construction and other related outlays are estimated at P4,550,000. Sales at this new branch are estimated at P9,000,000 per year. One third of these sales will be in the form of accounts receivable at any given time. Cost of goods sold is estimated to be sixty percent of sales. The investment in merchandise inventory is approximately P400,000 at any time during the year. Cash of P120,000 will be needed to meet payments for operating expenses. Accounts payable and other current liabilities are expected to increase by 5% of sales. Required: The total amount to be invested in the new branch.

Abie Company is planning to add a new product line to its present business. The new product will require new equipment costing P 12,000,000 and having a five-year useful life with no residual value. The following estimates are made available: Annual sales​​​​​20,000,000 Annual cost and expenses: Materials​​​​​4,800,000 Labor​​​​​​6,200,000 FOH excluding depreciation on new​​2,540,000 Selling and administrative expenses​​1,700,000 Income tax rate​​​​30% Required: Using the direct and indirect method of computation, determine the (a) annual profit after tax

Abie Company is planning to add a new product line to its present business. The new product will require new equipment costing P 12,000,000 and having a five-year useful life with no residual value. The following estimates are made available: Annual sales​​​​​20,000,000 Annual cost and expenses: Materials​​​​​4,800,000 Labor​​​​​​6,200,000 FOH excluding depreciation on new​​2,540,000 Selling and administrative expenses​​1,700,000 Income tax rate​​​​30% Required: Using the direct and indirect method of computation, determine the (b) annual net cash flow after tax.

Pride Company is planning to buy a new machine costing P2,600,000 with a useful life of five years and P100,000 residual value. Other data were made available: Expected annual sales revenue​​​4,600,000 Annual out of pocket costs​​​​2,450,000 Income tax rate​​​​​40% Working capital​​​​​500,000 Depreciation method, straight line ​Required: 1. Payback period

Pride Company is planning to buy a new machine costing P2,600,000 with a useful life of five years and P100,000 residual value. Other data were made available: Expected annual sales revenue​​​4,600,000 Annual out of pocket costs​​​​2,450,000 Income tax rate​​​​​40% Working capital​​​​​500,000 Depreciation method, straight line ​Required: 1. Payback reciprocal

Pride Company is planning to buy a new machine costing P2,600,000 with a useful life of five years and P100,000 residual value. Other data were made available: Expected annual sales revenue​​​4,600,000 Annual out of pocket costs​​​​2,450,000 Income tax rate​​​​​40% Working capital​​​​​500,000 Depreciation method, straight line ​Required: 1. Accounting rate of return on original investment

Pride Company is planning to buy a new machine costing P2,600,000 with a useful life of five years and P100,000 residual value. Other data were made available: Expected annual sales revenue​​​4,600,000 Annual out of pocket costs​​​​2,450,000 Income tax rate​​​​​40% Working capital​​​​​500,000 Depreciation method, straight line ​Required: 1. Accounting rate of return on average investment

Pride Company is planning to buy a new machine costing P2,600,000 with a useful life of five years and P100,000 residual value. Other data were made available: Expected annual sales revenue​​​4,600,000 Annual out of pocket costs​​​​2,450,000 Income tax rate​​​​​40% Working capital​​​​​500,000 Depreciation method, straight line ​Required: 1. Accounting rate of return on average book value during 1st year

An investment of P4,000,000 can bring in the following annual cash inflows, net of tax: First year​​​700,000 Second year​​​900,000 Third year​​​850,000 Fourth year​​​1,600,000 Fifth year​​​750,000 Sixth year​​​70,000 Determine the payback period.

An equipment costing P1,000,000 is expected to yield the following net cash inflows and residual values: Year​​Net Cash Inflow​Residual value, net of tax 1​​​ 300,000​​​ 200,000 2​​​ 400,000. ​​​100,000 3​​​ 200,000. ​​​50,000 4​​​ 150,000. ​​​20,000 ​Required: Payback bailout period ​Solution:

Von Company is considering the production of a new product line which will require an investment of P10,000,000, no scrap value. The investment will have a useful life of ten years, during which annual net cash inflows before taxes of P3,500,000 are expected. The income tax rate is 40%. Required: (a) annual profit for purposes of computing the accounting rate of return

Von Company is considering the production of a new product line which will require an investment of P10,000,000, no scrap value. The investment will have a useful life of ten years, during which annual net cash inflows before taxes of P3,500,000 are expected. The income tax rate is 40%. Required: (b) accounting rate of return based on original and average investment.

Cass Company would like to purchase equipment costing P1,200,000 that will produce annual cash inflows of P500,000. At the end of its useful life of five years, the equipment will have a residual value of P20,000. Additional working capital needed to operate the equipment is P250,000 at time zero and P150,000 at the end of year 2. The desired rate of return is 18%. Required: 1. Net present value

Cass Company would like to purchase equipment costing P1,200,000 that will produce annual cash inflows of P500,000. At the end of its useful life of five years, the equipment will have a residual value of P20,000. Additional working capital needed to operate the equipment is P250,000 at time zero and P150,000 at the end of year 2. The desired rate of return is 18%. Required: 2. Profitability index

Cass Company would like to purchase equipment costing P1,200,000 that will produce annual cash inflows of P500,000. At the end of its useful life of five years, the equipment will have a residual value of P20,000. Additional working capital needed to operate the equipment is P250,000 at time zero and P150,000 at the end of year 2. The desired rate of return is 18%. Required: 3. Net present value index

Iyah Corporation is considering the following investment alternatives: The company has P13,500,000 available money for investment. The company’s required market rate of return is 12%. Required: Using the probability index model, determine in which project hsuld the company invest its money.

Canton Corporation can buy a new machine for P2,520,000. This machine is expected to have a useful life of four years, no residual value and will yield an annual net cash inflow after tax of P950,000 during its economic life. Canton’s cost of capital is 10%. Required: Time adjusted rate of return.

The Liquid Corporation is contemplating the replacement of an old machinery. The annual cost of operating the old machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,300. The cost of the new machinery is P160,000, net of the trade-in allowance, with an estimated useful life of 8 years, no residual value. The effective income tax rate of 40% and the cost of capital is 8%. The old machinery has an annual depreciation of P15,000 while the new machinery is estimated to have an annual depreciation of P20,000. The book value of the old machine is zero. Required: 1. Payback period

The Liquid Corporation is contemplating the replacement of an old machinery. The annual cost of operating the old machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,300. The cost of the new machinery is P160,000, net of the trade-in allowance, with an estimated useful life of 8 years, no residual value. The effective income tax rate of 40% and the cost of capital is 8%. The old machinery has an annual depreciation of P15,000 while the new machinery is estimated to have an annual depreciation of P20,000. The book value of the old machine is zero. Required: 2. Payback reciprocal

The Liquid Corporation is contemplating the replacement of an old machinery. The annual cost of operating the old machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,300. The cost of the new machinery is P160,000, net of the trade-in allowance, with an estimated useful life of 8 years, no residual value. The effective income tax rate of 40% and the cost of capital is 8%. The old machinery has an annual depreciation of P15,000 while the new machinery is estimated to have an annual depreciation of P20,000. The book value of the old machine is zero. Required: 3. Accounting rate of return on original and average investment.

The Liquid Corporation is contemplating the replacement of an old machinery. The annual cost of operating the old machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,300. The cost of the new machinery is P160,000, net of the trade-in allowance, with an estimated useful life of 8 years, no residual value. The effective income tax rate of 40% and the cost of capital is 8%. The old machinery has an annual depreciation of P15,000 while the new machinery is estimated to have an annual depreciation of P20,000. The book value of the old machine is zero. Required: 4. Net present value

The Liquid Corporation is contemplating the replacement of an old machinery. The annual cost of operating the old machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,300. The cost of the new machinery is P160,000, net of the trade-in allowance, with an estimated useful life of 8 years, no residual value. The effective income tax rate of 40% and the cost of capital is 8%. The old machinery has an annual depreciation of P15,000 while the new machinery is estimated to have an annual depreciation of P20,000. The book value of the old machine is zero. Required 5. Profitability index

The Liquid Corporation is contemplating the replacement of an old machinery. The annual cost of operating the old machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,300. The cost of the new machinery is P160,000, net of the trade-in allowance, with an estimated useful life of 8 years, no residual value. The effective income tax rate of 40% and the cost of capital is 8%. The old machinery has an annual depreciation of P15,000 while the new machinery is estimated to have an annual depreciation of P20,000. The book value of the old machine is zero. Required: 6. Net present value index