Question:

Answer: Between years 2 and 3

Question: Mint Company is considering purchasing a machine with a cost of $10,000 and a useful life of 20 years. Mint expects the machine to produce net annual cash flows of $2,000 each year. What is the cash payback period of the machine?

Answer: 5 years

Question:

Answer: 3.25 years

Question: All of the following are strengths of the payback period except:

Answer: it ignores the time value of money.

Question: All of the following are weaknesses of the payback period: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

Answer: - it ignores all cash flows after the payback period.

• it ignores the time value of money.

• Question:

• Answer: 25%

• Accounting rate of return = Annual after-tax net income of $15,000 ÷ Annual average investment of $60,000 = 0.25 or 25%.

• Average annual investment = ($110,000 cost plus $10,000 salvage value) / 2 = $60,000.

• Question: All of the following are weaknesses of the accounting rate of return except:

• Answer: it focuses on net cash flows, not income.

• Question:

• Answer: $9,680

• Net present value = (Cash flow in year 1 of $15,000 × 0.9259) + (Cash flow in year 2 of $15,000 × 0.8573) + (Cash flow in year 3 of $15,000 × 0.7938) + (Cash flow in year 4 of $15,000 × 0.7350) − Amount invested of $40,000 = $9,680 (rounded).

• Question: If the net present value is greater than zero, the company should:

• Answer: invest

• Question: A company is evaluating two separate projects, both with the same $15,000 initial investment.

• Answer: $9,868