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1. Read Publishing is considering the purchase of a used printing press costing
\$84,200. The printing press would generate a net cash inflow of \$37,422 a year
for 3 years. At the end of 3 years, the press would have no salvage value. The
company’s cost of capital is 10 percent. The company uses straight-line
depreciation. The present value factors of an annuity of \$1.00 for different rates
of return are as follows:
Cost of Capital
Period

8%

10%

12%

14%

16%

2

1.78

1.74

1.69

1.65

1.61

3

2.58

2.49

2.40

2.32

2.25

4

3.31

3.17

3.04

2.91

2.80

The investment’s net present value is:

A.
B.
C.
D.

\$ 5,480
\$ 19,200
\$ 76,800
\$ 8,981

2. Read Publishing is considering the purchase of a used printing press costing
\$84,200. The printing press would generate a net cash inflow of \$37,422 a year
for 3 years. At the end of 3 years, the press would have no salvage value. The
company’s cost of capital is 10 percent. The company uses straight-line
depreciation. The present value factors of an annuity of \$1.00 for different rates
of return are as follows:
Cost of Capital

Period

8%

10%

12%

14%

16%

2

1.78

1.74

1.69

1.65

1.61

3

2.58

2.49

2.40

2.32

2.25

4

3.31

3.17

3.04

2.91

2.80

The investments internal rate of return (rounded to the
nearest percent) is:
A.
B.
C.
D.

10%
16%
14%
12%

3. Urbana Corporation is considering the purchase of a new machine costing
\$75,000. The machine would generate net cash inflows of \$24,214 per year for 5
years. At the end of 5 years, the machine would have no salvage value.
Urbana’s cost of capital is 12 percent. Urbana uses straight-line depreciation.
The investment’s accounting rate of return (rounded to three decimal points) on
initial investment is:
A.
B.
C.
D.

12.285 percent
10.270 percent
30.545 percent
81.613 percent