### 56 the selection of an appropriate discount rate for determining net present value o 4298261

56. The selection of an appropriate discount rate for determining net present value of a particular investment proposal does not depend upon:

A. The present value of the proposal's future cash flows.

B. Alternative investment opportunities available.

C. The nature of the investment proposal.

D. The investor's cost of capital.

57. Joseph Company is considering replacing an existing piece of machinery with newer technology. In deciding whether to replace the existing machinery, management should consider which costs as relevant?

A. Future costs which will be classified as fixed rather than variable.

B. Future costs which will be different under the two alternatives.

C. Sunk costs associated with the old machine.

D. Historical costs associated with the old machine.

58. Of the following techniques of capital budgeting, which one explicitly incorporates an estimate of an interest rate into the basic computation?

A. Payback method.

B. Average rate of return.

C. Net present value method.

D. Accounting book value method.

59. The present value of money is always:

A. Less than its future amount.

B. The same as its future amount.

C. More than its future amount.

D. More or less than its future amount depending upon the discount rate.

60. Which method of project selection gives consideration to the time value of money in a capital budgeting decision?

A. Payback method.

B. Average rate of return.

C. Net present value method.

D. Accounting rate of return.

61. Kenny Company is considering the possibility of investing $1,500,000 in a special project. This venture will return $375,000 per year for 12 years in after tax cash flows. Depreciation on the project will be $187,500 per year using straight-line depreciation. The payback period for the project is:

A. 6 years.

B. 12 years.

C. 4 years.

D. 2 years.

62. Jericho Corporation is considering the purchase of new equipment costing initially $96,000. The equipment has an estimated life of 6 years with no salvage value. Straight-line depreciation is to be used. Net annual after tax cash flow is estimated to be $31,200 for 6 years. The payback period is:

A. 1.2300 years.

B. 3.0769 years.

C. 5.0799 years.

D. 6.0000 years.

Lazar Corporation is evaluating a proposal to invest in a machine costing $89,000. The machine has an estimated useful life of ten years, and an estimated salvage value of $14,000. The machine will increase the company's net income by approximately $9,600 per year. All revenue and expenses other than depreciation will be received and paid in cash.

63. The payback period of the machine is approximately:

A. Four years.

B. Eight years.

C. Five years.

D. Ten years.

64. The expected rate of return on average investment of the machine is:

A. 10%.

B. 17%.

C. 18.6%.

D. 48%.

65. Sterling Corporation has borrowed $75,000 that must be repaid in two years. This $75,000 is to be invested in an eight-year project with an estimated annual net cash flow of $15,000. The payback period for this investment is:

A. Two years.

B. Five years.

C. Eight years.

D. Indeterminable with the given information.

Newport Corporation is considering investing $65,000 in equipment to produce a new product. The useful service life of the equipment is estimated to be ten years, with no salvage value. Straight-line depreciation is used. The company estimates that production and sale of the new product will increase net income by $6,500 per year.