The definition of an annuity is

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Multiple Choice

The definition of an annuity is

a. similar to the definition of a life insurance policy.

b. a series of equal cash flows at intervals.

c. an investment product whose funds are invested in the stock market.

d. both (a) and (b) are correct.

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Which of the following results of the net present value method in capital budgeting is the LEAST acceptable

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Multiple Choice

Which of the following results of the net present value method in capital budgeting is the LEAST acceptable?

a. $(10,000)

b. $(7,000)

c. $(18,000)

d. $0

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Which of the following is NOT an appropriate term for the required rate of return

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Multiple Choice

Which of the following is NOT an appropriate term for the required rate of return?

a. Discount rate

b. Hurdle rate

c. Cost of capital

d. All of the above are appropriate terms

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In using the net present value method, only projects with a zero or positive net present value are acceptable because

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Multiple Choice

In using the net present value method, only projects with a zero or positive net present value are acceptable because

a. the return from these projects equals or exceeds the cost of capital.

b. a positive net present value on a particular project guarantees company profitability.

c. the company will be able to pay the necessary payments on any loans secured to finance the project.

d. of both (a) and (b).

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1. Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine

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Multiple Choice

Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine. The existing machine is operable for three more years and will have a zero disposal price. If the machine is disposed of now, it may be sold for $60,000. The new machine will cost $200,000 and an additional cash investment in working capital of $60,000 will be required. The new machine will reduce the average amount of time required to wash clothing and will decrease labor costs. The investment is expected to net $50,000 in additional cash inflows during the year of acquisition and $150,000 each additional year of use. The new machine has a three-year life. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the asset's life.

What is the net present value of the investment, assuming the required rate of return is 24%? Would the company want to purchase the new machine?

a. $(32,800); yes

b. $(16,400); no

c. $16,400; yes

d. $32,800; no

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Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine

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Multiple Choice

Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine. The existing machine is operable for three more years and will have a zero disposal price. If the machine is disposed of now, it may be sold for $60,000. The new machine will cost $200,000 and an additional cash investment in working capital of $60,000 will be required. The new machine will reduce the average amount of time required to wash clothing and will decrease labor costs. The investment is expected to net $50,000 in additional cash inflows during the year of acquisition and $150,000 each additional year of use. The new machine has a three-year life, and zero disposal value. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. The working capital investment will not be recovered at the end of the asset's life.

What is the net present value of the investment, assuming the required rate of return is 10%? Would the company want to purchase the new machine?

a. $82,000; yes

b. $50,000; no

c. $(50,000); yes

d. $(82,000); no

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Assume your goal in life is to retire with one million dollars. How much would you need to save at the end of each year if interest rates average 6% and you have a 20-year work life

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Multiple Choice

Assume your goal in life is to retire with one million dollars. How much would you need to save at the end of each year if interest rates average 6% and you have a 20-year work life?

a. $14,565

b. $27,184

c. $120,102

d. $376,476

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