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
