A3 14.28% B) 42.1 1% C) 147.37% D) 25.00% 23) Nelson Corp. is considering the pu
ID: 2596994 • Letter: A
Question
A3 14.28% B) 42.1 1% C) 147.37% D) 25.00% 23) Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings 23) from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $75,000, what is the payback period? Ignore income taxes. A) 4.75 years B) 3.25 years C) 7.00 years D) 4.00 years The method that compares the present value of a project's future cash flows to the initial investment is: B) internal rate of return. D net present value. A) accounting rate of return. C) payback period. Lawrence Corp, is considering the purchase of a new piece of equipment. When discounted at a hurdle rate of 8%, the project has a net present value of $24,580,w discounted at a hurdle rate of 10%, the project has a net present value of ($28,940 internal rate of return of the project is: A) greater than 10%. C) between zero and 8%. B) between 8% and 10%. D) zero.Explanation / Answer
23.
Answer = 4 Years
Payback period = Initial Cost / Annual cash inflow
=$400,000 / 100,000
Payback period = 4 Years
24.
Answer = Net Present Value
Net present Value is the difference between Present Value of Future cash inflows and Initial Cash outflow.
25.
Answer = Between 8% and 10%
IRR is the rate at which the Present Value of Future cash inflows and Initial Cash outflow is equal.
IIRR = Present Value of Future Inflows = Initial cash outflow
That means the NPV will also be Zero as both will be equal then answer will be zero
NPV = Present Value of Future cash inflows - Initial Cash outflow
If at 8% the NPV is 24,850 and at 10% it is (28,940)
Then the Zero must be between 8% and 10%